When Will China Stop This Developer’s Bad Behavior?

Since mid-2020, China has cracked the whip at private-sector real estate developers and forced them to trim debt, even at the expense of dragging the economy into its slowest growth in decades. But for all the big talk of deleveraging, it is remarkable that the government has allowed its state-backed firms to continue with questionable financial transactions.

Consider Beijing-based real estate developer Sino-Ocean Group Holding, which has relied on its largest shareholder, China Life Insurance Co., a company that reports to the Ministry of Finance, for life lines. Last month, the builder’s dollar bonds went on a roller-coaster ride after it said it would defer a coupon payment to “preserve cash,” a decision it reversed days later. As of 2022 year-end, Sino-Ocean held only 4.6 billion yuan ($667 million) in unrestricted cash, against 38 billion yuan in debt due within one year. It was a sharp deterioration from 12 months earlier, when its cash coverage ratio stood at a much healthier 116%.