China is pulling out all stops to halt its real estate slide, ordering banks to ramp up lending to distressed developers. The moves aim to ensure firms can finish millions of unfinished housing units and praying restored buyer faith restarts sales.
For Mongolia, one of the world’s largest coking coal exporters, Beijing’s property rescue has significant implications. With China accounting for 90% of Mongolia’s coal exports, policies reshaping Chinese steel demand reverberate here.
Steel relies on coking coal. And construction gobbles up steel. So while Beijing’s developer bailout sparks bank risks at home, it bodes well for Mongolian miners should the efforts stabilize China’s teetering property market.
Already analysts forecast the measures could deliver a 2023 rebound lifting housing starts 25%. Combine restored property confidence with President Xi Jinping’s infrastructure stimulus, and the policy pivots predict steel — and hence coking coal — tailwinds after a painful year adjusting to China’s building slowdown.
But Beijing is playing with fire. Rules forcing banks to lend despite developer balance sheet holes brought the sector to this precipice in the first place. More relaxed lending keeps kicking the can down the road. And with $44 billion in offshore developer bonds already defaulted this year, banks face souring loan risks should the resuscitation fall short.
Which leaves Mongolia balancing cautious optimism against realities that the world’s second largest economy remains rattled at its foundations.
Yes, revived Chinese housing starts would accelerate coking coal demand, easing pressure on Mongolian miners adjusting to the commodity crash triggered by China’s 2022 building cool-down.
But should policy mediations like easier bank loans or household mortgage boycott reliefs fail to rekindle buyer enthusiasm, recently announced mining layoffs may prove the tip of the job-loss iceberg. The implosion of a main export destination is no small matter for commodity-dependent Mongolia.
The risks transcend coal. Consider construction, Mongolia’s second largest industry. If Chairman Xi’s $220 billion infrastructure push can’t arrest housing declines, pessimism may seep into adjacent sectors despite state largesse.
In the end, optimistic takes on Mongolian coal demand must be tempered by realities that China’s property policies remain a house of cards. Yes, revived housing starts would help Mongolian mining; more eased bank loans could slow developer troubles.
But the world has learned this year that China’s economy no longer boasts guaranteed smooth sailing. And right now, Beijing’s policy makers are crossing their fingers that hastily constructed life rafts can keep the property sector afloat. For the wider region and industries like Mongolia coal reliant on Chinese stability, much depends on their fortunes reversing course.