News & Events
On September 20th, the 18th Asian Bond Market Summit, organized by "The Asset", was successfully held in Hong Kong. A representative from CCXAP was invited to attend the roundtable discussion on "Discovering value in dislocated markets" and delivered a panel speech. This summit brought together industry experts to discuss the challenges, opportunities, and prospects in the fixed-income market. Distinguished guests and representatives from globally renowned financial institutions, commercial enterprises, investors, issuers, and more participated in this summit, providing professional insights into the latest trends and hot topics in the bond market.
Panel Discussion"Seeking opportunities in an era of transition"
The roundtable discussion was moderated by Danie Yu, the Editor-in-Chief of "The Asset". CCXAP's Executive Director of Credit Ratings, Elle Hu, was invited to attend. The discussion featured in-depth analysis and exploration of various topics, including promising investment directions, the development direction of local government financing platforms, the outlook for the real estate industry in the next 12 months, and investors' focus on diversifying asset allocation. Other participants in the discussion included Satoru Yamadera, Advisor at the Asian Development Bank's Economic Research and Regional Cooperation Department; Gary Lau, Managing Director of Moody's Investor Services; and Judy Kwok, Head of Fixed Income Research for Greater China at Manulife Investment Management.
Elle Hu, CCXAP Executive Director of Credit Ratings
Elle Hu stated that in the first half of the year, the Chinese economy exhibited a weak recovery trend. Domestic bond market financing saw some recovery under liquidity support, while the offshore bond market remained sluggish. The macroeconomic recovery still faces challenges such as a complex and severe external environment, insufficient domestic demand, and numerous risks in key areas. Regulatory authorities continue to consider preventing and resolving bond market default risks as a bottom line for debt risk management. In general, the following risk points are being monitored: first, the risk of differentiation in the real estate industry and its transmission to the outside; second, structural and regional debt risks of local governments.
Elle Hu believes that real estate control policies are still relatively loose. The optimization of real estate policies is more targeted at first-tier cities and some hot second-tier cities that still have many restrictive policies in place. Policy space for lower-tier cities is limited. Both property sales and real estate development investment have weakened. Expectations of a downturn amid increased uncertainty in the economic recovery process and lack of confidence are core factors restraining the industry's recovery. The industry's bottoming out process will continue for some time, and its duration will depend on factors such as the economic recovery process, the timing and intensity of policy implementation for real estate optimization in core cities, and the stimulating effects on market confidence and demand after policy implementation. In terms of competitive dynamics, in a market environment of weak industry recovery, major state-owned enterprises continue to dominate sales and investment. State-owned property developers with government backing have improved sales performance, while private enterprises have seen a decline, indicating the resilience of major state-owned enterprises in a downturn. The main force in real estate sales has shifted from private-owned enterprises to state-owned enterprises. Currently, Chinese real estate companies in the overseas bond market are still stagnant. In the domestic bond market, some issuance is taking place, but it is primarily driven by state-owned enterprises. Private real estate companies still face difficulties in bond financing, and the secondary market experiences significant price fluctuations. During the industry's bottoming out process, attention must be paid to the liquidity risks of private real estate companies with large maturing debts. In the short term, the liquidity of some weak real estate companies may still face certain pressures, and the risk of refinancing for real estate companies, including bond maturity extensions and offshore bond defaults, remains high.
Elle Hu pointed out that this year, due to lower-than-expected economic growth, weakness in the real estate industry, and continued stagnation in the land market, local fiscal revenue growth has been constrained, and government reimbursements to LGFVs have faced certain limitations. From January to August, national general public budget revenue increased by 10% YoY, but when excluding the impact of retained and refunded taxes from the previous year, it decreased YoY, with government fund budget revenue declining by 15% YoY. This reflects the continued weakness in economic recovery since the second quarter, simultaneous declines in land market volume and prices, and significant challenges in restoring fiscal revenue for the year. Additionally, against the backdrop of accelerating the resolution of implicit debt and the normalization of non-standard defaults, external financing channels for LGFVs are further restricted, and regional differentiation in fundraising performance is significant, with continued pressure on refinancing in weaker regions. In addition to the high volume of urban development bonds maturing and repurchasing during the year, especially the high financing costs in weaker regions further push up the pressure to meet debt repayment obligations. Furthermore, liquidity risks for some LGFVs have been continuously exposed in recent years, especially for regions with weak financial strength, heavy debt burdens, and limited financial resources, where risk events such as non-standard defaults, commercial paper overdue, and technical defaults on bonds have gradually become normal. Moreover, risk events are increasingly spreading from district and county-level LGFVs to municipal or provincial-level LGFVs.
