Semiconductor equipment manufacturer Hwatsing Technology Co. Ltd. booked a blistering Shanghai STAR Market IPO debut on Wednesday amid a Covid-induced global shortage of microchips, reports Caixin. The Tianjin-based firm’s shares surged 72% in early trading, but gave back some of those gains over the course of the day to close up 64% at RMB 224.1 ($33.5), valuing Hwatsing at about RMB 23.9 billion.

The strong landing contrasted with other chipmaking industry debuts which have slumped recently, such as ASR Microelectronics which dropped 33.75% on its first trading day in mid-January. Investors who spoke to Caixin put that down to Hwatsing’s profitability, sound fundamentals, and its competitive edge in 12-inch wafer polishing.

The firm, which makes chemical-mechanical polishing (CMP) machines, raised about RMB 3.6 billion by issuing 26.7 million shares through the IPO. That’s more than three times its original target to raise RMB 1 billion. CMP machines are used to flatten a wafer’s front surface for adding the next layer of circuit features.

Some foreign investors returned to China’s battered stock and bond markets in May as Beijing stepped up efforts to stimulate the economy following months of COVID lockdowns and heightened global political tensions, reports Reuters.

Even as tough anti-virus restrictions persisted, foreign investors bought a net $2.5 billion worth of beaten-down China-listed shares last month, the biggest tally in four months, according to data from Refinitiv Eikon and the Hong Kong stock exchange.

In the bond market, China saw a net inflow of $2 billion in May, according to data from the Institute of International Finance (IIF). If confirmed by China’s official data, it would snap a three-month streak of foreign outflows.

Given the vast amount of personal wealth tied up in property in China, if there is one market that cannot fail it is this one, but cracks are beginning to show.

By Patrick Body

China’s property market appears to be facing an unprecedented combination of problems, led by the debt-ridden property developer China Evergrande Group and a surprise failed sale of fellow developer, SOHO China.

In the case of Evergrande, the company has amassed around $300 billion in debts and with bonds starting to come due there are very valid concerns of a potential default in the not to distant future. Recent weeks have seen the crisis come to a head after reports of a partial payment from Evergrande to a Shanghai-based paint supplier in the form of apartments, all of which are yet to be built.

Despite a brief reprise after several loan payment extensions, the embattled property developer’s woes have since started to spiral. Early the next week JPMorgan cut its price target for Evergrande by almost two-thirds, down from $0.93 to $0.36 and changed its recommendation from overweight to underweight.

Around the same time, there were chaotic scenes at the Group’s headquarters when around 100 disgruntled investors crowded its lobby to demand repayment of loans and financial products. The incident prompted the company to announce a plan that offers retail investors the choice of three options for repayment from Evergrande’s high-yield wealth management products.

According to the plan announce by Du Liang, head of Evergrande’s wealth management unit, investors can accept cash installments, property or investors’ payables on residential units they have purchased. “It is difficult for Evergrande to make RMB 40 billion ($6.2 billion) of repayments at once for the wealth management products at this moment,” Du said. Investors can expect returns as soon as Evergrande’s property projects are sold, he added.

The group is attempting to sell some of its assets in order to right the ship but admits that it has made no “material progress” so far. Fund managers and analysts have been clear that Evergrande’s struggles to sell off assets and avert defaulting on its liabilities is running the risk of contagion across other privately-owned developers, a worry for the Chinese property market as a whole.

Perhaps not a direct result of Evergrande’s current woes, but no less significant is the surprising breakdown in discussions for the $3 billion sale of SOHO China to US private equity group Blackstone. SOHO’s portfolio of prime real estate in China’s top cities had been set to be a centerpiece of Blackstone’s expanding footprint in the country.

The US group had made its offer conditional on approval by China’s competition authorities which a joint statement from the two parties revealed would not be received within the agreed-upon timeframe. The breakdown of the deal saw SOHO’s shares plummet 40% and raised questions around the Chinese leadership’s willingness to let the deal go through.

The vast bulk of personal wealth in China is held in the form of property ownership (even if ownership is actually a leasehold for a maximum of 70 years), meaning that a property market collapse in China would have catastrophic ramifications for the country. While market collapse is not necessarily imminent, the cases of Evergrande and SOHO China may be reflective of deeper systemic problems, such as the repercussions of a consistent failure in implementing any form of property tax.

The winds of change are blowing towards China’s property market and only time will tell if its foundations are strong enough to withstand them.

The State Administration of Foreign Exchange (SAFE), China’s currency regulator, has been carrying out a rare survey of banks and companies, asking about their ability to deal with volatility in the yuan and their risk management processes, according to three banking and policy sources who spoke to Reuters.

The SAFE surveyed “how companies in different sectors managed their FX exposure and how they used hedging tools”, said one of the sources, who was directly involved in the survey, told Reuters.

The regulator did not give a reason for the survey, but its timing suggests Chinese authorities are girding for currency volatility as the Federal Reserve and other major central banks wean economies off massive pandemic-era stimulus, and are keen to avoid a repeat of the violent yuan slide during US tightening in 2015-2016.

Two other sources, also directly involved, told Reuters that the survey conducted this month was different from the routine quarterly questionnaire that banks submit on their proprietary trading books.

China’s leading search engine, Baidu, has raised $1 billion in a bond sale that enjoyed strong investor appetite despite the company’s shares taking a hit from Beijing’s regulatory crackdown on tech groups, reports the FT.

The debt sale was hugely oversubscribed, attracting between $5 billion and $6 billion of orders, according to two bankers who worked on the deal that spoke to the FT.

The dollar debt issuance comes as Chinese authorities have engaged in a sweeping 10-month campaign targeting the country’s largest technology companies. Baidu’s shares are down by a third this year, while on Thursday the Hong Kong-listed stock of Alibaba fell to its lowest level since the ecommerce group’s secondary listing in the city in 2019.