The downturn in China’s property market is impacting another segment of financial markets: ESG-labeled securitized debt. Chinese developers have drastically reduced the issuance of securities linked to climate or social objectives, with only $2.8 billion raised in the Asia-Pacific region in the first half of the year, according to Bloomberg Intelligence. This represents an 86% decline from the previous year, contrasting sharply with increases seen in the US and the Europe, Middle East, and Africa (EMEA) regions.
“This is definitely a bit of a setback after significant issuance in Asia during 2022 and 2023,” said Trevor Allen, head of sustainability research at BNP Paribas SA. The cooling housing market in China has led to fewer loans being packaged into green securitizations, he explained.
Both commercial and residential property sales in China have continued to decline as consumers reduce spending. The increased scrutiny of ESG labeling might also be contributing to the downturn, despite the niche market being largely unregulated in Asia, unlike in the European Union.
Notably, special purpose entities from developers like China Jinmao Holdings Group Ltd., Shui On Land Ltd., and electric vehicle maker BYD Co., who were among China’s top issuers in 2023, have either slowed down or stopped issuing this year, Bloomberg Intelligence data shows.
Korea Housing Finance Corp., a significant issuer of securitized debt for affordable housing in recent years, has also been absent in 2024. Additionally, Chinese developers have not sold any commercial mortgage-backed securities with an ESG label this year, compared to $4.3 billion in sales over the previous two years.
Chinese developers traditionally used these funds for energy-efficient commercial or residential buildings. However, there have been doubts about whether these projects are genuinely climate-friendly.
“Investor demand remains strong, but finding sufficient green-eligible mortgages, whether residential or commercial, has been a challenge,” said Claire Coustar, Deutsche Bank AG’s global head of ESG for fixed income and currencies.
Securitizations are pools of assets, such as home or auto loans, packaged into interest-bearing securities. ESG investors in these products, which are often complex and opaque, must also contend with a lack of standardized definitions of green attributes and limited data on the underlying loans.
With property developers stepping back, China’s electric vehicle producers have become the primary issuers of ESG securitized debt in Asia this year. Shengshi Rongdi Auto Loan ABS and Chang Ying Auto Loan ABS, both linked to the electric vehicle sector, raised a combined $2.2 billion. The former is a unit of BYD, while the latter is backed by a Great Wall Motor Co. entity.
