JPMorgan Chase released a research report stating that Chinese property stocks rose this morning, with market speculation possibly stemming from mainland authorities no longer requiring developers to report compliance with the "three red lines" on a monthly basis. However, the bank believes this news alone is insufficient to explain the market movement, as authorities had actually ceased requiring regular reports from developers several years ago, meaning this is not new information. Nevertheless, the bank cannot rule out that the surge was driven by other market rumors, though no relevant information was available at the time of writing the report. Regarding the property sector, the bank reiterated that its performance is likely to continue outperforming the market until the "Two Sessions" in March and the Politburo meeting of the Communist Party of China Central Committee in April. The bank is optimistic about China Res Land (01109), China Res Mixc (01209), and CHINA JINMAO (00817), but believes that in a policy-driven market, LONGFOR GROUP (00960) offers the best risk-reward profile.
JPMorgan pointed out that the "three red lines" policy for Chinese property developers was introduced in 2020, aiming to guide developers towards deleveraging. It includes three metrics: (1) a net gearing ratio of less than 100%; (2) a liability-to-asset ratio, excluding advance receipts, of less than 70%; and (3) a cash-to-short-term-debt ratio of greater than 1x. The bank stated that recent market rumors about mainland authorities no longer requiring monthly reporting are not new. For struggling private enterprise developers, the core issue remains liquidity and survival, regardless of the "three red lines" policy. Without additional funding support from mainland banks, merely relaxing financial metrics cannot change the situation.
For state-owned enterprise developers, this could theoretically allow them to increase leverage for land acquisitions. However, in the current market environment, the bank believes central state-owned enterprises have no strong incentive to increase leverage; instead, they will remain prudent and continue to adhere to the "three red lines." Regarding a commentary published on January 1st in the magazine "Qiu Shi," which called for industry policies to be introduced comprehensively rather than piecemeal, JPMorgan views this not as a fundamental shift in the Chinese government's stance, but still as a positive signal indicating that authorities may be considering further policy support, with the next window being the "Two Sessions" in March and the Politburo meeting in April.
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