China’s slowing property market is weighing on another corner of the financial market: ESG-rated secured debt.
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(Bloomberg) — China’s slowing property market is weighing on another corner of the financial market: ESG-rated secured debt.
Data compiled by Bloomberg Intelligence shows that Chinese developers are issuing far fewer securities tied to climate or social goals, raising just $2.8 billion in Asia-Pacific in the first half. That’s down 86% from a year earlier, and bucks the trend in both the U.S. and EMEA, which saw increases.
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“This is definitely a bit of a step back,” said Trevor Allen, head of sustainability research at BNP Paribas, after a big issuance in Asia in 2022 and 2023. With China’s housing market slowing, there were fewer loans that could be converted into green securities, he added.
Commercial and residential property sales have continued to decline in China as consumers cut back on spending. Tougher scrutiny of environmental, social and corporate governance (ESG) ratings may also play a role, although the niche market is largely unregulated in Asia, unlike the EU.
Developers China Jinmao Holdings Group Ltd. and Shui On Land Ltd., along with electric-vehicle maker BYD Co., were among China’s top three exporters in 2023 though they either slowed or were absent this year, according to BI data.
Korea Housing Finance Corp., a major issuer of secured debt aimed at providing affordable housing in recent years, also missed 2024.
Chinese developers have not registered any sales of ESG-labeled commercial mortgage-backed securities in 2024, compared with a combined $4.3 billion over the past two years, BI data shows.
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Chinese developers have typically used this funding to build energy-efficient commercial or residential buildings, although doubts have been raised about whether these projects will ever be truly climate-friendly.
“Demand from investors remains very strong, but there is no doubt that finding enough green-qualified mortgages, whether on the residential or commercial side, has been a challenge,” said Claire Costar, global head of ESG, fixed income and currencies, Deutsche Bank AG.
Asset securitizations are pools of assets such as home or car loans that are bundled into interest-bearing securities. Investors in the often complex and opaque products also have to contend with a lack of standardized definitions of so-called green features and limited data on the underlying loans.
With property developers on the sidelines, China’s electric vehicle makers have been the main drivers of launches in Asia so far this year.
Shengshi Rongdi Auto Loan ABS and Chang Ying Auto Loan ABS raised a total of $2.2 billion. The former was founded by a unit of BYD, while Great Wall Motor Co. was behind the latter.
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