China’s Aggressive Efforts to Rescue Property Market in Doubt
China Property Measures Spell Big Opportunity for Mongolia’s Coal Market
In an effort to halt its real estate slide, China has ordered banks to increase lending to distressed developers, aiming to ensure firms can complete millions of unfinished housing units and restore buyer faith to restart sales.
This move by China has significant implications for Mongolia, one of the world’s largest coking coal exporters. With China accounting for 90% of Mongolia’s coal exports, any policies that reshape Chinese steel demand will undoubtedly have a ripple effect on the Mongolian coal industry.
Steel production relies heavily on coking coal, and the construction industry is a major consumer of steel. Therefore, Beijing’s developer bailout, while sparking bank risks at home, could bode well for Mongolian miners if the efforts stabilize China’s teetering property market.
Analysts are already forecasting that the measures could deliver a 2023 rebound, lifting housing starts by 25%. When combined with President Xi Jinping’s infrastructure stimulus, the policy pivots also predict positive tailwinds for the steel industry, and hence coking coal, after a difficult year adjusting to China’s slowdown in building.
However, it’s important to note that Beijing is also taking risks with these measures. Rules forcing banks to lend despite developer balance sheet holes are what brought the sector to this precarious position in the first place. More relaxed lending may simply be kicking the can down the road, and banks could face significant loan risks should the property market resuscitation fall short.
Mongolia, therefore, must balance cautious optimism with the reality that the world’s second-largest economy remains rattled at its foundations.
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. However, should policy mediations like easier bank loans fail to rekindle buyer enthusiasm, recently announced mining layoffs may be just the beginning of job losses in Mongolia. The implosion of a main export destination is no small matter for the commodity-dependent country.
The risks extend beyond coal to Mongolia’s construction industry, which is the second largest in the country. If Xi’s $220 billion infrastructure push fails to arrest housing declines, pessimism may seep into adjacent sectors despite state largesse.
Despite the potential opportunities, optimistic views on Mongolian coal demand must be tempered by the reality that China’s property policies remain tenuous. The world has learned this year that China’s economy no longer boasts guaranteed smooth sailing, and Beijing’s policymakers are hoping that hastily constructed life rafts can keep the property sector afloat. For the wider region and industries like Mongolia, which rely on Chinese stability, much depends on the fortunes of the property market reversing course.
