(Bloomberg) — A slowdown in growth underlined the impact of the property market slump on China’s economy with the central bank cutting a key interest rate for the first time since early 2020 to support expansion of the world’s second-largest economy.

The National Bureau of Statistics reported Monday that the Gross Domestic Product grew by 4% over the last quarter of 2021, compared to a year ago. This was higher than the predicted 3.3% increase, but less than what economists had expected. The December quarter saw a fourth straight month of decline in home prices.

Logan Group Co.’s dollar bonds fell to new records, which dragged down the notes of stronger real estate companies. China’s largest developer Country Garden Holdings Co. is being impacted by the property crisis with its shares and bonds coming under pressure amid investor fears that a reportedly failed fundraising effort may presage declining confidence. 

The Key Developments

• China’s Economic Growth Slowed, Prompting Interest Rate Cut
• China Lowers the Policy Interest Rate For The First Time Since April 2020
• China’s Property Crisis Hits the Biggest Builder Country Garden
• China’s Property Market Is Set for State-Dominated ‘Age of Rust’
• Chinese Developer R&F Downgraded to Restricted Default by Fitch
• China’s Economy Loses Steam Just as Omicron Spreads: Eco Week
• Volatility among China’s High Yield Property Bonds is a sign of progress: BI

China’s Economic Growth Slowed, Prompting Interest Rate Cut (10 a.m. HK)

China’s economic growth weakened last quarter in the face of slow private spending, a property market crisis and virus outbreaks. 

The National Bureau of Statistics reported Monday that GDP increased 4% over the last quarter of 2021, compared to a year ago. This was higher than the predicted 3.3% increase by economists, but less than in the previous three months. For the full year, the world’s second-largest economy expanded 8.1%, well above the government’s target of “over 6%.” 

Logan Dollar Bonds Drop to New Record Lows. Weighing on Peers (09:46 AM HK).

Some of Logan’s dollar bonds are tumbling to record lows, dragging down notes of other stronger developers. Logan’s 5.25% note due 2023 fell 8.7 cents on the dollar to 68.3 cents, set for its biggest drop on record, Bloomberg-compiled prices show. 

China Reduces its Policy Interest Rate for the First Time since April 2020 (09:27 a.m. HK).

China lowered a key interest rate for the first time since the peak of the pandemic in 2020 as a property-market slump and repeated virus outbreaks dampened the nation’s growth outlook.

The People’s Bank of China cut the rate on its one-year policy loans by 10 basis points to 2.85%. That’s the first reduction since April 2020. It also reduced the rate of the 7-day reverse repurchase agreements to 2.1%.

Goldman Applauds Macau Gaming In Asia HY, Advises Diversification (09:25 a.m. HHK)

Goldman Sachs (NYSE:) prefers Macau gaming and “non-China property B rated corporates” in Asia high-yield credit, recommending that investors stay cautious and diversified among better quality developers.   

Increasing stress levels in China’s high yield property sector suggest policy easing measures have so far been “insufficient to stabilize credit flow to developers,” analysts Kenneth Ho and Chakki Ting wrote in a report dated Friday. 

China’s Property Crisis Reaches Biggest Builder Country Garden (7:47 a.m. HK)

Country Garden’s shares and bonds were hammered last week on concerns about confidence. The company remains one of the few large private developers left that is larger and more qualified than peers Shimao Group Holdings Ltd., which saw their credit ratings suffer dramatic drops.

As the firm’s reputation is one of contagion risks, due to unprecedented stress levels in the international credit market, good credit could be affected. With more than 3,000 housing projects located in almost every province in China, Country Garden’s financial health has immense economic and social consequences. 

If Country Garden starts showing signs of stress, it will severely damage already fragile investor and homebuyer confidence, posing threats to China’s economy and even social stability.

Goldman already raised 2022 junk default estimate: China Today (7.42 a.m. HK).

For Chinese developers, a turn of the calendar page hasn’t turned around their fortunes. The dollar bond prices of their clients have fallen to new levels. It’s only mid-January, and Goldman Sachs has already raised its default forecasts for the year. 

The rise in interest in bonds and extensions of maturity is causing stress, according to Kenneth Ho (Strategist) From an earlier estimate of 11.5%, they now anticipate a default rate in excess of 19% for high yield developers.

China Home Market Suffers Deeper as Fourth-Month Prices Drop (7 a.m. HK). 

According to the National Bureau of Statistics, new prices for homes in 70 cities fell by 0.28% from November when they were down 0.33%. The falling prices could discourage homebuyers from being concerned about their property’s value, which may make it more difficult for developers to market properties and raise much-needed cash. 

Authorities’ recent efforts to loosen restrictions on real-estate financing have not helped the market. Home loan demand stayed weak in December, with households’ mid- and long-term loans, a proxy for mortgages, increasing the least since February 2020. Prices fell due to year-end campaigns of developers. 

©2022 Bloomberg L.P.