Morning Chronicle - China cuts lending rates, boosting property firms

Property firm shares and bonds surged on the fresh rate cut from People's Bank of China -- the second in two months -- days after Beijing reported slower growth in the final months of 2021.

The slowing real estate industry has put downward pressure on growth, with several large companies including debt-laden development giant Evergrande defaulting in recent months.

The central bank said it had lowered the one-year loan prime rate (LPR) to 3.7 percent, from 3.8 percent in December.

It had reduced the LPR -- which guides how much interest commercial banks charge to corporate borrowers -- in December, for the first time in 20 months, as the economy was threatened by the real estate crisis and coronavirus flare-ups.

The launch of a regulatory drive last year to curb speculation and leverage had cut off avenues to crucially needed cash, sparking a crisis in the property sector.

But investors regained confidence amid expectations of regulatory easing with shares in Hong Kong-listed Agile Group up more than six percent and Country Garden climbing 7.4 percent.

Property developer bonds also surged Thursday on news of the rate cut, in what Bloomberg said was a record-breaking rally, highlighting the huge sums of money primed to flow into distressed securities if the property sector crackdown was eased.

Thursday's move comes after the world's second-biggest economy reported strong 8.1 percent growth in 2021, but with the first half of the year accounting for much of that growth.

The central bank also cut the interest rate on its one-year policy loans on Monday -- the first drop in the key rate for loans to financial institutions since early 2020.

- 'Targeted support' -

China was the only major economy to expand in 2020, after quickly bringing the outbreak under control.

But the country is now battling several localised virus clusters as it deals with the ongoing property market slump and fallout from a wide-ranging regulatory crackdown last year.

"Today's reductions to both the one-year and five-year Loan Prime Rates (LPR) continue the PBOC's efforts to push down borrowing costs," said Sheana Yue, China economist at Capital Economics.

She said the cuts mean "mortgages will now be slightly cheaper, which should help shore up housing demand."

"Targeted support for property buyers does appear to be limiting one of the more severe downside risks facing the economy."

Hong Kong-listed China Aoyuan Group became the latest major developer to miss bond payments, saying in a filing it would be unable to pay two notes due Thursday and Saturday, amounting to $688 million in total.

Fitch Ratings also downgraded its rating for real estate giant Sunac China Holdings, warning the developer would have to use its cash reserves to pay off debts maturing soon.

T.Taylo--MC-UK