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Source: ICE BofA Asian Dollar High Yield Corporate China Issuers Index; Chart: Axios Visuals

With defaults stacking up in China’s property sector, Beijing has stepped in more forcefully to contain the damage.

Catch up fast: The Chinese government is loosening the flow of credit. It recently cut reserve requirements for banks and has asked the banks to provide more loans to property developers. To encourage M&A, it declared that loans backing such deals won’t be subject to the “three red lines” test that effectively froze lending to property developers.

  • The government has also asked banks to speed up the mortgage approval process for consumers that want to buy properties from cash-starved developers.

Why it matters: Ever since China Evergrande, the largest and most distressed developer of the bunch, started hinting at default this past fall, the biggest question for markets was how much of the sector will be engulfed in the crisis.

  • “I don’t think the policymakers want to see more and more Evergrandes coming out … The government is trying to break the vicious cycle by starting to ease [policy], and stabilize the sector,” Tracy Chen, fixed income portfolio manager at Brandywine Global Investment Management, tells Axios.

State of play: High-yield-rated developers are still locked out of the offshore bond market by virtue of sky-high yields. But the freefall in bond prices appears to be over — yields have stopped climbing and have begun to move the other way, ICE BofA index data show.

The big picture: Policy support or not, the sector is still a minefield for investors. Reports of hidden off-balance sheet debts, as well as corporate governance concerns stoked by inter-company deals, have investors primed for more surprises, Chen says.

The bottom line: The property sector accounts for about a quarter of economic activity in China, while housing is about 70% of individual wealth held by the Chinese. It's "too important for policy-makers not to ensure its well-being," Chen adds

Go deeper

Jan 12, 2022 - World

China hosts string of Gulf officials in sign of growing influence

Wang Yi (right) greets Faisal bin Farhan on Jan. 10. Photo: Ji Chunpeng/Xinhua via Getty

The foreign ministers of Saudi Arabia, Kuwait, Oman and Bahrain and the secretary-general of the Gulf Cooperation Council are all visiting China this week for talks on boosting trade and security cooperation.

Why it matters: The flurry of visits by Gulf officials is part of China’s push for deeper involvement in the Middle East. For Beijing, the Gulf in particular is key to its energy supply and increasingly to its geopolitical influence.

Updated 36 mins ago - Politics & Policy

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Illustration: Shoshana Gordon/Axios

  1. Health: Axios-Ipsos poll: Omicron's big numbersAnother wave of death — FDA limits use of Regeneron and Lilly antibody treatments — Fauci: "Confident" Omicron cases will peak in February.
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  4. World: U.K. to lift travel testing requirement for fully vaccinated — Beijing Olympic Committee lowers testing threshold ahead of Games.
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The Robinhood M&A rumor mill churns

Illustration: Sarah Grillo/Axios

Robinhood's valuation is now just over $11 billion, a fraction of where it traded in August and below that of its last private round of funding. Cue the M&A mongers.

Why it matters: It's not just Robinhood—falling values of growth-oriented tech stocks have raised speculation that formerly high-flying fintechs could be snapped up by more well-capitalized buyers.