On the southern bank of the Amur river that runs along the Russian border is one of the most affordable property markets in China. Where the average two-bedroom flat in Beijing can cost $1 million, investors can snap one up in the city of Hegang for $10,000. Dependent almost entirely on coal mining, Hegang’s economy has been on the ropes for years. The pandemic appeared to push it over the edge. On December 23, local officials announced the city has frozen hiring and begun fiscal restructuring. That may be a first for China, but it’s unlikely the last.
Men work at the construction site of the Beijing Xishan Palace apartment complex developed by Kaisa Group Holdings Ltd in Beijing, China, November 5, 2021. REUTERS/Thomas PeterHONG KONG, Jan 10 - On the southern bank of the Amur river that runs along the Russian border is one of the most affordable property markets in China. Where the average two-bedroom flat in Beijing can cost $1 million, investors can snap one up in the city of Hegang for $10,000.
This means that even as developers default on bonds and trade credit, and leave projects half-finished, China’s infamous army of local government finance vehicles could start going belly up next. An April document from the state cabinet suggested dysfunctional ones should be allowed to go bankrupt.
Now land sales are forecast to fall another 20% this year after a bruising 2021, according to S&P Global Ratings. Yet despite Beijing’s recent tolerance of defaults by state-owned enterprises, and despite many LGFVs' obvious lack of profitability and dubious governance, some investors remain convinced they will be protected. Local ratings agencies have awarded investment grades to those with very weak credit profiles, a November analysis by CreditSights showed.
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