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HSBC Boss Sees Two More Years of China Commercial Property Woes

(Bloomberg) — The “massive” correction to China’s commercial real estate market may have at least another two years to run, according to HSBC Holdings Plc Chief Executive Officer Noel Quinn.

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“It’s a faster correction and a more decisive one than I was expecting, or I think anyone was expecting, and I think it’s got quite a while to go before it really stabilizes,” Quinn said at a Bank of America Corp. conference on Tuesday. “You could be looking at another two plus years of correction.”

HSBC said last month it would take further charges against its more than $12 billion of exposure to commercial real estate in China, where it is the biggest foreign bank, as a third of those assets are “substandard” or “impaired,” according to Chief Financial Officer Ewen Stevenson. The sector is nonetheless “modest” in the context of HSBC’s overall lending book, Stevenson added.

China’s property developers posted their worst first-half earnings in over a decade, Bloomberg News reported earlier this month, an outcome that will likely pressure stocks further even as the government boosts efforts to stabilize the broader sector.

Quinn said he was encouraged by some of the policy changes that had taken place but added that these were aimed primarily at re-establishing the flow of domestic capital into the sector. “I think it will take quite some time for the international capital markets to rebalance towards that in a positive way.”

A clampdown on leverage, China’s strict Covid Zero policy and a weakening economy are to blame for much of the fallout in the property sector this year. Government plans to lower mortgage rates and offer guarantees on some upcoming onshore bond offerings have done little to lift sentiment.

China’s biggest property developer by sales, Country Garden Holdings Co., last month predicted more pain for the real estate industry after posting a record drop in first-half profit.

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