Chinese real estate developers may face stricter scrutiny: portfolio managers

A portfolio manager said that as Beijing stepped up efforts to tighten rules, Chinese real estate developers may be subject to stricter scrutiny for ignoring environmental laws.

The latest move by the Chinese authorities to order debt-laden real estate developers China Evergrande arrive Demolition of 39 buildings Teresa Kong, head of fixed income at investment company Matthews Asia, said that the success of its Ocean Flower Island project surprised many people.

“I think this has undoubtedly surprised both the company and investors. The government has been vigorously pursuing environmental policies,” she said in an interview with CNBC’s “Squawk Box Asia” on Wednesday.

Haihua Island is a man-made archipelago in Danzhou, Hainan, touted as “the largest archipelago in the world” by Chinese state media.according to Wall Street JournalThe Danzhou government stated last month that the island has damaged the marine environment and is partly responsible for causing extensive damage to coral reefs.

Kong said that it may not only be that Evergrande may have bypassed environmental rules-but that there may be other real estate developers.

“Environmental wildcards are issues that we should consider-not only developers, but many other industries that are under scrutiny, because China has indeed strengthened environmental protection,” Kong pointed out.

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In terms of sales, Evergrande is China’s second largest developer in 2020 and China’s largest real estate developer. It issued offshore dollar-denominated bonds last year at US$19 billion.The developers have in total $300 billion in liabilities As of last year, it was on the verge of collapse.

Kong said that China’s environmental protection law is not entirely new. However, as the country stepped up its efforts to ensure implementation, companies that do not strictly follow the rules “are undergoing due scrutiny,” she added.

In the long run, the real estate industry still has a lot of room for growth. It is an important sector of China’s overall GDP.


Head of Fixed Income, Matthews Asia

Evergrande also stated on Tuesday that it “will continue to actively maintain communication with creditors, work hard to resolve risks and safeguard the legitimate rights and interests of all parties.”

S&P Global Ratings warned in November that Evergrande’s default is “very likely” because the company is no longer able to sell new houses.

Despite the company’s troubles, Kong is still optimistic about China’s overall real estate industry in the long run.

“If you look at China’s urbanization rate, it has just reached 60%,” she said, adding that it is still much lower than the United States and Japan.

“Therefore, in the long run, the real estate industry still has a lot of room for growth. It is such an important industry for China’s overall GDP,” Kong added.

Evelyn Cheng of CNBC contributed to this report.