Chart of the Week: China’s banks unruffled by housing correction

China’s housing market remains very weak amid a sharp fall in confidence since the collapse of Evergrande. The value of publicly-traded Chinese real estate firms continues to slump, with relative losses in that sector of close to 50% since a cyclical peak in January 2018. Meanwhile, residential housing sales were 22% lower in value in the first two months of this year than in the same period in 2021, with the area of floor space sold down almost 14%. Yet despite substantial exposure to real estate, Chinese banks’ equity performance has held up relatively well. Our interpretation? Investors believe that leveraged Chinese real estate developers, such as Evergrande, may be allowed to fail; but large banks will not be – and they are probably right.