Regulatory Authorities Plan to Establish a White List for Real Estate Companies, Including Approximately 50 Domestic Companies with Different Ownership Structures What Information is Required to Meet their Normal Financing Needs?

Economic Observer has learned from multiple real estate companies that a list of real estate enterprises, sorted by asset scale and still in normal operation, is being formulated Regulatory authorities have called for the fulfillment of the normal financing needs of the companies on the list This list includes approximately 50 domestic real estate companies with different ownerships On November 17th, the Peoples Bank of China, China Banking and Insurance Regulatory Commission, and China Securities Regulatory Commission held a forum with financial institutions to discuss key work such as real estate finance, credit issuance, and debt risk resolution of financing platforms The meeting emphasized the need to treat different ownership real estate enterprises equally and meet their reasonable financing needs, and not to withhold or cut off loans for real estate enterprises in normal operation The use of the second arrow to support private real estate enterprises in issuing debt financing will continue Support will also be provided for real estate enterprises to raise funds through capital markets and reasonable equity financing The joint forum of the three departments called for increased financial support from financial institutions in terms of credit, debt, and equity financing for enterprises, but did not make any mandatory requirements The heads of 18 national commercial banks, 5 national financial asset management companies, and 4 large securities firms participated in this forum However, a person in charge from a leading joint-stock commercial bank stated to Economic Observer that they have not yet received the aforementioned white list Regulatory authorities formulated the white list for real estate companies and clarified the requirement of not lower than three

Real Estate White List: Only Top Enterprises Untouched by Debt Defaults Can Meet Normal Financing Needs, Transmitting Positive Signals.

No wonder the real estate sector in the capital market is performing comparatively enthusiastically today.

It turns out that there will be a “real estate white list” in the future, which means that companies on the white list will experience reduced financing pressure.

However, defining “normal financing needs” is also a matter of knowledge, and a list of 50 white-listed companies may still be quite long.

Not all of them may be truly recognized by the financial system.

Real estate enterprises recognized by the financial system have never lacked money.

Their major shareholders have always been supportive, and even if they do not enter this white list, they will not worry about financing.

For those real estate enterprises that have weak major shareholders but are unlikely to encounter major risks, even if they make it onto the white list, they will still face financing pressure and can only meet “normal financing needs”.

Because financing is not solely determined by real estate enterprises.

The financial system also needs to conduct risk control, and everyone understands the trends that the real estate industry has seen.

No one wants to end up with bad real estate debts, so everyone has a pretty clear idea of which real estate enterprises can survive.

Looking at the backgrounds of major shareholders can generally reveal the answer.

Therefore, this matter mainly aims to boost confidence in the real estate industry and convey positive signals, so that people will not worry about real estate financing.

However, there is already a definite verdict on which specific real estate enterprises can survive and which cannot.

After all, it is no longer possible to take the old path and artificially raise prices to reduce inventory.

Industrial upgrading and the digital economy are the future directions.

The real estate industry has been hanging by a thread because it fears that it may affect current economic data.

Therefore, it has always been calling for help for the real estate industry, but why is financing for many real estate enterprises being cut off?

The game of passing the buck among real estate enterprises has been halted, and everyone understands this.

Actually, they no longer want to play in the real estate market and want to focus on industrial upgrading with one concerted effort.

However, the real estate business is too extensive, so they can only gradually retreat while continuing to push the industry forward.

On one hand, they are slowly stabilizing the landing of the real estate industry, and on the other hand, they are adding pressure.

This is the current situation of the real estate industry.

This white list also specifically mentions various requirements, such as maintaining normal operations and avoiding debt defaults.

Vanke, Longfor, Xincheng, Poly, China Resources, Central China, Longfor, Shekou, and Gemdale have the highest probability of making it onto the list.

Previously, when inquiring about the financing situation of real estate enterprises at a meeting, these six companies - Vanke, Poly, China Resources, Central China, Longfor, and Gemdale - attended.

In the end, it will be the top real estate enterprises that survive and dominate the entire real estate market.

After the increment becomes smaller and smaller, everyone will transition together to focus on the stock.

This is the development trend of the real estate industry.

Currently, the strongest players seem to be Vanke, Poly, Shekou, China Resources, and they should be capable of capturing the largest market share.

Real estate companies' financing needs

Economic Observer has learned from multiple real estate companies that a list of real estate companies ordered by asset size and still in normal operation is being drafted, and regulatory authorities emphasize that the normal financing needs of the companies on the list should be met. This list includes approximately 50 domestic real estate companies of different ownership types.

On November 17th, the People’s Bank of China, China Banking Regulatory Commission, and China Securities Regulatory Commission held a symposium for financial institutions to discuss key tasks such as real estate finance, credit allocation, and resolution of financing platform debt risks. The meeting emphasized the need to treat different types of real estate companies equally and satisfy their reasonable financing needs. Financial institutions should not hesitate to provide loans or withdraw existing loans for real estate companies that are operating normally. The “second arrow” should continue to be used to support private real estate companies in issuing bonds for financing. Support should also be given to real estate companies to raise funds through equity financing in the capital market.

The symposium jointly held by the three authorities called for increased financial support from financial institutions in terms of credit, debt, and equity financing for relevant enterprises. However, no mandatory requirements were put forward. The CEOs of 18 nationwide commercial banks, 5 nationwide financial asset management companies, and 4 large securities firms attended the symposium.

However, a representative of a leading joint-stock commercial bank stated to Economic Observer that their bank had not received the above-mentioned white list.

According to reports, the “normal operation” mentioned in the white list refers to companies that have not experienced debt defaults or other similar situations. According to this criterion, companies such as Vanke, Longfor, Xin Cheng, and Agile are on the list.

Multiple informed sources revealed that regulatory authorities explicitly requested during the symposium on the 17th that each bank’s real estate growth rate should not be lower than the average real estate growth rate in the banking industry. For non-state-owned real estate companies, the growth rate of loans to corporate entities should not be lower than the bank’s real estate growth rate, and the growth rate of mortgage loans to non-state-owned real estate companies should not be lower than the bank’s mortgage growth rate.

Not long ago, the People’s Bank of China, the Ministry of Housing and Urban-Rural Development, China Banking Regulatory Commission, and China Securities Regulatory Commission convened a symposium with multiple real estate companies to understand industry risk resolution, financial conditions, and financing needs of the companies. Representatives of 6 real estate companies, including Vanke, Poly, China Resources, CIFI, Longfor, and Agile, attended the symposium.

A senior executive from a non-state-owned real estate company called for prompt implementation of financial support, but the specific execution depends on the rhythm and strength of commercial banks.

Regarding the actual effectiveness of this white list, an executive from a private real estate company believes that it is not very helpful for companies that are currently able to obtain bank loans and financing as usual, but it is more beneficial for companies that are on the edge of default and have been rejected by banks for loans.

In the past two years, there have been multiple versions of the “white list” related to real estate company financing:

In May 2022, regulatory authorities instructed China Chengxin Credit Enhancement Investment Corporation to provide “full, unconditional, irrevocable joint guarantees” for the medium-term notes issued by real estate companies. The “demonstration bond issuance, high-quality private real estate companies” list included companies such as Midea, Country Garden, and Longfor.

In January of this year, the People’s Bank of China and the China Banking and Insurance Regulatory Commission jointly held a symposium on major banks' credit work. In his speech, Zou Lan, Director-General of the Monetary Policy Department of the People’s Bank of China, mentioned that relevant departments were drafting the “Action Plan for Improving the Balance Sheet of High-Quality Real Estate Companies” and focusing on promoting four actions: “asset activation,” “debt continuity,” “equity supplementation,” and “expected improvement.” Comprehensive measures were implemented to improve the operational and financing cash flow of high-quality real estate companies and guide the return of their balance sheets to a safe range.

Regarding the specific list of real estate companies that the market is concerned about, Zou Lan stated that the conditions for high-quality real estate companies in the plan do not include a specific list, and it is up to financial institutions to determine autonomously.

According to executives from multiple private real estate companies, sales in November are not as good as in October, and if financing cash flow does not see substantial improvement amid the continuous deterioration of operational cash flow, the difficulty of reversing the real estate downturn will further increase.

“White List of Real Estate Enterprises” May Cause Problems

The formulation of the “White List of Real Estate Enterprises” signifies that regulatory authorities are providing a safety net for the debt of certain real estate enterprises. By increasing their credit limits, imposing restrictions on bond issuance, or introducing credit mitigation tools, they aim to help these enterprises refinance their existing debts, achieve a debt-to-debt financing model, and continue rolling over their debts.

However, in today’s pure credit-based monetary system, the consequences of this approach are equivalent to printing money and engaging in the most foolish and ineffective money printing behavior.

Real estate enterprises themselves are already trapped in a cycle of declining economic performance. Providing them with liquidity can only prevent debt defaults and does not improve their operational conditions. This means that the newly injected money does not promote production and development in the real economy, but instead brews and accumulates inflation risks caused by excessive money supply.

If, during the current sluggish cycle, we quickly enter an inflationary period due to excessive money supply, the real economy may not even experience the economic recovery stage that precedes inflation. Because the money flows into the real estate industry, which lacks growth potential, emerging industries will not receive substantial financial support.

And once inflation takes hold, it is ultimately borne by us, the ordinary people. While the debt burden of real estate enterprises is temporarily relieved, the high prices sustained by high inflation will still severely squeeze the investment and consumption potential of residents. Our living standards will not improve; on the contrary, our purchasing power may be weakened by the price increases of other products in the real estate supply chain.

Although releasing a massive amount of liquidity through an overly accommodative monetary policy is a necessary path to resolve China’s enormous debt, injecting liquidity into the real estate sector alone will inevitably lead to suboptimal resource allocation, hindering our development efficiency.

What is more critical is that the growth space of emerging industries will be severely squeezed and may even face a crisis. Without industrial transformation and upgrading, new sources of revenue and taxation cannot be developed, new job positions cannot be created, and a new economic ecosystem cannot be built. In that case, we will be trapped in long-term “land finance” traps, and a vicious cycle of “the more support given, the poorer they become; the poorer they become, the more support given” will be formed with real estate enterprises.

First Batch of 50 Real Estate Companies Implementing Pre-Sale Property Purchase Restrictions

The first thing to note is that it is a call for action, not an implementation.

Secondly, we are curious about which 50 companies are included. It appears that these 50 companies are on the verge of a financial crisis, as their pre-sale properties are not available for purchase.

Central Bank’s White List: Genuine Efforts to Rescue Enterprises, Mostly State-Owned

Previously, I wrote an answer saying that the appeal made by the central bank had no value whatsoever. The real estate enterprises of state-owned assets don’t need its appeal and are perfectly fine. Moreover, the condition of “normal operation” mentioned in the appeal excludes many private enterprises. Only a very small number of companies would truly benefit.

It seems that the central bank has heard my criticism and is hastening to prepare a white list in order to prove that it is not just empty talk, but genuinely intends to help.

Let us wait and see, to find out which enterprises will be listed when the white list is released.

First and foremost, it’s clear that companies like Evergrande and Country Garden, which represent those at risk of defaulting, will not be on the white list.

Now, let me take a blind guess. I believe that more than 80% of the companies on this list will have state-owned backgrounds, so-called “adding icing on the cake.” There is no need to pay too much attention to them.

What really deserves attention is which lucky private enterprises will become the beneficiaries of timely support.

Financial supervision of funds in the real estate industry

In the current situation, without a white list or a black list, financial institutions may not do any business. Let’s not talk about whether there should be a white list or a black list for now, but put all the real estate companies that have abandoned projects, have serious quality concerns, or secretly downgraded into the black list!

If the financial system does not effectively supervise and allocate funds to real estate companies, the situation will only get worse! What should be given to real estate companies is only a credit line, not actual money. Real estate companies should only have the authority to disburse construction funds upon approval of the project, and the construction company will directly receive the payment from the financial system and pay it to the suppliers. At the same time, the real estate company must deposit the received purchase funds into a designated bank account to repay the loan. Only by strictly implementing these measures can the real estate industry develop in a healthy manner, reduce abandoned projects, and protect the interests of homebuyers.

Changes in the Real Estate Market and Policy Measures

What is there to say? The intention of the three red lines is exactly this. It is evident that the policy is successful. For China’s real estate market, there are too many existing companies. Especially many companies that rely on local relationships have grown completely unchecked.

In the future, there will only be 50 companies left in the entire real estate industry. Not only does this facilitate better management, but it also benefits the industry’s orderly development. Moreover, it can effectively curb corruption in local land finances. This is a win-win situation.

Originally, in a market economy, real estate companies, like other enterprises, would undergo mergers and reorganizations, eventually forming a few large national companies. In addition, there would be some small local companies with distinctive characteristics, just as the development of supermarkets has changed in the past.

However, the speed of development and change in the real estate industry has been too fast. The three red lines policy was initially introduced to gradually tighten and accelerate the process of bankruptcy and reorganization of companies. But the policy’s original intention did not anticipate the sudden collapse of the entire industry’s operating environment, making this progress too rapid. It is difficult to determine which companies are the good ones and which ones are the bad ones.

This is the unique market economy in China. Whether you are a good company or not depends not on your performance, but on how your parents view you. Administrative power far outweighs market power. Why do people have to strive and work hard? This is an era of connections.

As for the different ownership mentioned in the title, is there anything worth paying attention to? There must always be someone accompanying the prince in his studies. The previous generation either perishes on the beach or enjoys life on the beaches of Florida. As for the next generation, let’s not dwell on the negatives.

In addition, if you have purchased a house and it has not been delivered yet, you need to closely monitor whether your real estate company is on the list of the 50 designated companies. If it is, then you can probably sleep peacefully at night. If it is not, … I also don’t know what to do.

Security and Risks of Whitelisting

Do these whitelists guarantee security and prevent unfinished projects from being abandoned? If there are scammers targeting naive investors, there is no point in crying about being deceived!

Unresolved Credit Issues of Real Estate Enterprises

The policy of last year’s “Three Arrows” is just a replica. It is estimated that there will not be much difference in the implementation and actual effects of the follow-up of the white list of real estate enterprises compared to the “Three Arrows”.

Since the beginning of this year, apart from Evergrande, which exploded in the early stage, large and medium-sized developers such as Sino-Ocean and Country Garden have successively extended the deadline for their domestic public bonds. Jinke and Vanke, the top performers in the industry, have also faced a lot of negative public opinion. The default price of the public bond from Jinke, which will mature within one year, once dropped to 20 yuan. The debt repayment ability and liquidity situation of many non-state-owned developers have further deteriorated.

In my opinion, state-owned developers in the white list will basically not be included, and both banks and bond market investors will be eager to give them money; as for the hybrid ownership and private developers, even if they are included in the white list, it will not be of much use. On the one hand, mainstream investors in credit bonds have almost completely abandoned non-state-owned real estate bonds. It is already a problem for non-state-owned developers to issue bonds, even if they do not consider the cost. On the other hand, many banks have adopted independent credit management policies for real estate companies, rigorously assessing the credit qualifications of their clients. If there are obvious negative developers, banks definitely want to find a way to distance themselves. Regulatory calls are one aspect, and their own risk considerations are another.

In fact, from the end of 2021 to now, we have seen many policy documents from the central bank and the Financial Regulatory Bureau, and have also heard a lot of nice words. However, the real estate market still shows no obvious improvement. In terms of solving practical problems and issuing documents and speeches, issuing documents and speeches are undoubtedly easier. Besides, it is very likely to cause trouble and take on responsibilities during the process of problem-solving, so it is better to just issue documents and speeches. But as a result, the real estate market is still in a precarious state, and the credit problems of non-state-owned developers will not be effectively resolved.

Is the Financing Treatment Fair?

To ensure equal financing treatment for different ownerships, or to devise a generous plan for the benevolent bank,

In the current market situation, it requires a group of experts to engage in high-risk, low-return transactions,

Can you ponder on it? Without adhering to the rules, is it possible to carry out effectively?