SHANGHAI - China bond investors are betting government measures to cool property prices won't hurt real estate companies as money managers and economists warn of a crash that may slow the economy leading global growth.
Yields on China developers' local-currency notes fell to the lowest ever relative to government debt this year, with the spread on Poly Real Estate Group Co's 4.3 billion yuan ($634 million) in 7 percent bonds due 2013 narrowing to a record 95 basis points on July 8, according to Shanghai Stock Exchange prices on Bloomberg.
The spread tightened by 68 basis points to 138 basis points since the end of 2009.
Kenneth Rogoff, economics professor at Harvard University, participates in a panel discussion at the 2010 World Economic Forum annual meeting in Davos, Switzerland, in January. Andrew Harrer / Bloomberg
Local investors believe "urbanization, improving standards of living and demographic growth all support the long-term outlook" for house prices, said Steve Wang, a credit strategist for Bank of China International Securities Ltd in Hong Kong. Even if there's a short-term decline, "China will still be a major engine for the world economy", he said.
China may contribute a third of global growth this year as demand for its manufactured goods recovers, the Organization for Economic Cooperation and Development forecasts.
Policymakers intensified a crackdown on property speculation when the economy expanded at the fastest pace since 2007 in the first quarter, prompting Harvard University Professor Kenneth Rogoff to see a slowdown in price appreciation that began in May as the start of a real estate "collapse".
Prices in 70 Chinese cities rose 11.4 percent in June from a year earlier compared to 12.4 percent in May, according statistics bureau data. The value of property sales rose 25 percent in the first half to 1.98 trillion yuan, while investment in projects rose 38 percent to 1.97 trillion yuan.
Property investment accounts for about 10 percent of gross domestic product and construction consumes half China's steel and 36 percent of its aluminum, JPMorgan Chase & Co estimates.
Investors "in the short term aren't worried about the property market", said Tan Weisi, head of Fortune SGAM Fund Management Co's fixed-asset department in Shanghai. "People haven't felt a material impact from the housing market."
The extra yield buyers demand to own China Vanke Co's 2.9 billion yuan in 7 percent bonds due 2013 instead of government debt fell 61 basis points to 200 basis points since the start of January and dropped to a record 153 basis points on May 21, according to exchange-traded prices on Bloomberg.