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KKR says China’s real estate correction may only be halfway done

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2 years ago

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High-rise buildings are illuminated at night in the West Coast New Area of Qingdao, East China’s Shandong province, on March 22, 2024. 

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BEIJING — China’s real estate troubles are likely far from over and industry problems need to be addressed quickly if overall GDP growth is to pick up significantly, according to a report released Thursday by global investment firm KKR.

That’s one of the two key takeaways from a recent trip to China by the firm’s head of global and macro asset allocation, Henry H. McVey. It was his fourth visit in just over a year.

“A fundamentally overbuilt real estate industry needs to be addressed — and quickly,” he said in the report, which counts Changchun Hua, KKR’s chief economist for Greater China, among the co-authors.

“Second, confidence must be restored to drive savings back down,” McVey said, noting that would spur consumers and businesses to spend on upgrading to higher quality products, as Chinese authorities have promoted.

Real estate and related sectors once accounted for about one fifth or more of China’s economy, depending on the breadth of analysts’ calculations. The property industry has slumped in the last few years after Beijing’s crackdown on developers’ high reliance on debt for growth.

Based on comparisons to housing corrections in the U.S., Japan and Spain, China’s “housing market correction may be just halfway complete” in terms of its depth, the KKR report said.

“Both price and volume must come under pressure to finish the cleansing cycle,” the report said. “To date, though, it has largely been a contraction in volume.”

China's property market is unlikely to recover this year, Jefferies says

While KKR’s report didn’t provide much detail on expectations for specific real estate policy, the authors said more action by Beijing to improve China’s real estate sector “could materially shift investor perception.”

Amid geopolitical tensions, the country’s property market slump and drop in stocks have given many foreign institutional investors pause about China investing.

“According to some of our proprietary survey work, many allocators have considered reducing China exposure to 5-6%, down from 10-12% today at a time that we think fundamentals in the economy are likely bottoming,” the KKR report said.

Much of official Chinese data to start the year beat analysts’ expectations.

Chinese officials have said the real estate sector remains in a period of adjustment, while Beijing shifts its emphasis toward manufacturing and what it considers “high-quality development.”

Authorities have also released policies to promote financial support for select property developers, while many local governments — though not necessarily the largest cities — have significantly relaxed home purchase restrictions.

Real estate’s drag to moderate

KKR expects a modest slowdown in China’s GDP growth to 4.7% this year, and 4.5% next year, with real estate and Covid-related factors halving their drag on the economy from 1.4 percentage points in 2024 to a 0.7 percentage point drag in 2025.

“Our bottom line is that: with the ongoing [property] correction as well as some potential further policy support, we think the drag to [the] overall economy should moderate a bit over the next few years,” McVey said in a separate statement. He is also chief investment officer of KKR Balance Sheet.

Catering, accommodation and wholesale are set to modestly increase their contribution to growth in the next two years, while digitalization and the shift toward more carbon-neutral, green industry are expected to remain the largest drivers of growth, according to the report.

For investors, the report said a more important development than China’s GDP increase would be whether authorities could make it easier for businesses and households to tap capital markets.

“Repairing soft spots in [the] economy, especially around housing, will ultimately improve the cost of capital, and will also allow new consumer companies to access the capital markets likely at better prices if real estate and confidence are doing better,” McVey said in the statement.

Beijing in March announced a GDP target of around 5% for this year. Minister of Housing and Urban-Rural Development Ni Hong said last month that developers should go bankrupt if necessary and that authorities would promote the development of affordable housing.

Recent data have pointed to some stabilization in the property sector slowdown. The seven-day-moving average of new home sales in 21 major cities fell by 34.5% year-on-year as of Monday, better than the 45.3% drop recorded a week earlier, according to Nomura, citing Wind Information.

Compared with the same period in 2019, that sales average was only down by 27.8% as of Monday, versus a 47% drop a week earlier, Nomura said, noting most of the improvement was in China’s biggest cities.

Consumer outlook

KKR said most of its local portfolio is in consumer and services companies, whose business reflect how Chinese people in the middle to higher income range are spending modestly to upgrade their lifestyles.

“Top line growth is solid, margins are holding, and consumers are spending on less conspicuous items such as ‘smart homes,’ pets, and recreational activities,” the report said. “Domestic travel is also strong.”

Retail sales rose by a better-than-expected 5.5% year-on-year in January and February, boosted by significant growth in Lunar New Year holiday spending.

Longer term, KKR still expects that China can follow historical precedent in changing policy to be “more investor friendly.”

“While our message is not an all-clear signal to lean in,” the report said, “it is a reminder – using history as our guide – that, if China does adjust its domestic policies to be more investor friendly (especially as it relates to supply side reforms), this market could rebound significantly from current levels.”

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Private Credit Expansion and Regulatory Oversight in 2026 Capital Markets

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5 days ago

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August 9, 2026

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The global private credit market has solidified its role as a fundamental pillar of enterprise finance, expanding rapidly across middle-market lending, asset-backed finance, and infrastructure financing. As non-bank financial institutions capture a larger share of corporate debt origination, global regulatory bodies are increasing oversight to evaluate market transparency and systemic risk interconnections.

Growth Drivers in Direct Lending
Direct lending platforms have continued to attract substantial institutional allocations from pension funds, sovereign wealth entities, and insurance companies seeking attractive risk-adjusted yields. Private debt funds offer corporate borrowers customized financing structures, faster execution timelines, and confidentiality compared to syndicated loan markets.

In 2026, private credit managers are increasingly financing larger corporate transactions, providing multi-billion-dollar credit facilities for buyout deals and corporate restructurings. The flexibility of private debt contracts—featuring unitranche pricing and tailored covenant packages—has made direct lending the preferred capital source for middle-market enterprise sponsors.

Regulatory Scrutiny and Systemic Risk Assessment
The rapid growth of non-bank intermediation has drawn heightened scrutiny from financial regulators in North America and Europe. Because private debt agreements are negotiated privately without public exchange disclosures, central banks are evaluating potential vulnerabilities related to asset valuation consistency and fund liquidity profiles.

Regulatory agencies are introducing guidelines aimed at improving reporting standards for private investment vehicles managing institutional assets. Key focus areas include monitoring leverage ratios within private credit funds and evaluating indirect credit exposures between commercial banking institutions and private debt funds.

Navigating Elevated Refinancing Costs
With benchmark interest rates remaining elevated, private debt borrowers face higher debt service obligations on floating-rate credit facilities. Financial advisory firms report an increase in proactive liability management strategies, including payment-in-kind (PIK) interest options, equity infusions from sponsors, and covenant modifications.

Private credit managers with deep operational capabilities are actively working alongside portfolio companies to optimize working capital and maintain cash flow coverage ratios during periods of higher borrowing costs.

Key Financial Takeaways
1. Mainstream Asset Class: Private credit has expanded beyond niche alternative asset status into a core corporate finance solution.
2. Enhanced Transparency Standards: Regulatory frameworks are evolving toward greater disclosure requirements for private debt managers.
3. Proactive Risk Management: Lenders and sponsors must prioritize debt sustainability and active portfolio monitoring amid high benchmark rates.

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Venture Capital and Startup Valuations in 2026: Focus on Unit Economics and Sustainable Growth

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1 week ago

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August 5, 2026

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The global venture capital (VC) ecosystem is operating under a disciplined investment framework in 2026. Following years of valuation adjustments and shifting liquidity environments, venture capital firms and private equity investors are prioritizing proven unit economics, positive cash flow pathways, and capital efficiency over rapid, unconstrained user acquisition.

The Shift Toward Disciplined Startup Valuations
Early-stage and growth-stage startup valuations have stabilized at sustainable historical averages. Venture capital partners are conducting rigorous due diligence processes before deploying capital, scrutinizing gross margins, customer acquisition costs (CAC), net revenue retention (NRR), and lifetime value (LTV) metrics.

While total capital deployed remains robust, seed and Series A funding rounds are taking longer to finalize. Founders are expected to demonstrate clear product-market fit and defensible intellectual property rather than relying on top-line revenue projections unsupported by strong underlying economics.

M&A Activity and Liquidity Solutions
The market for venture-backed exits is seeing renewed momentum through strategic mergers and acquisitions (M&A) and secondary market liquidity facilities. Established corporate enterprises are acquiring high-performing technology startups to integrate proprietary artificial intelligence models and specialized software solutions into their product ecosystems.

Simultaneously, secondary market transactions have become an essential liquidity mechanism for early employees and institutional investors. Specialized secondary funds are purchasing pre-IPO shares at discounted valuations, providing liquidity opportunities while companies remain private for longer durations.

Sector Allocation: Deep Tech, Clean Energy, and Enterprise Automation
Venture capital investment is heavily concentrated in deep technology and capital-intensive engineering sectors. High-growth investment themes include:
– Next-Generation Semiconductors: Hardware startups designing specialized AI processors and energy-efficient microchip architectures.
– Clean Technology: Battery chemistry innovations, carbon capture solutions, and grid-scale energy storage startups.
– Enterprise Process Automation: Software platforms that automate complex workflows in healthcare, financial services, and industrial logistics.

Key Insights for Entrepreneurs and Investors
1. Prioritize Capital Efficiency: Startups focused on achieving operational profitability receive higher valuation premiums from institutional investors.
2. Strategic Exit Planning: Corporate M&A is serving as a primary exit route for venture-backed startups navigating prolonged IPO windows.
3. Focus on High-Moat Technologies: Deep tech and proprietary software architectures are securing the majority of growth-stage capital allocations.

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Finance

The Evolution of Digital Payments: Cross-Border Settlement and Central Bank Digital Currencies in 2026

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1 week ago

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August 5, 2026

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The infrastructure supporting global commerce is undergoing a major technological upgrade as real-time digital payment rails, cross-border settlement solutions, and Central Bank Digital Currency (CBDC) pilot programs achieve widespread commercial adoption. Financial institutions and fintech developers are reimagining payment processing to eliminate friction, lower transaction fees, and accelerate settlement speed.

Transforming Cross-Border Settlement Infrastructure
For decades, international corporate payments relied on legacy correspondent banking networks characterized by multi-day settlement delays, opaque fee structures, and high foreign exchange markups. In 2026, modern cross-border payment networks are enabling near-instantaneous settlement for international trade transactions.

Financial technology platforms are leveraging distributed ledger technology and real-time gross settlement (RTGS) interconnections to settle transactions in seconds. International trade participants benefit from reduced working capital requirements and minimized foreign exchange volatility risks during cross-border transfers.

Commercial Expansion of Central Bank Digital Currencies
Central banks representing major global economies are advancing CBDC initiatives from research phases into active commercial deployment. Wholesale CBDCs—designed specifically for interbank settlement and financial institution clearing—are demonstrating substantial efficiency gains in domestic and international transactions.

At the retail level, several nations have introduced public digital currency options alongside existing commercial banking networks. These sovereign digital payment channels aim to expand financial inclusion, lower consumer transaction fees, and improve the efficiency of government-to-citizen financial disbursements.

Open Banking and Embedded Finance Ecosystems
Alongside settlement infrastructure upgrades, open banking regulations and embedded finance frameworks are transforming merchant-consumer interactions. Commercial businesses across retail, travel, and business-to-business (B2B) services are integrating seamless payment APIs directly into their customer software interfaces.

Through open banking frameworks, consumers can initiate secure bank-to-bank payments without relying on traditional credit card networks, significantly reducing merchant processing fees. Integrated Buy-Now-Pay-Later (BNPL) options and point-of-sale credit facilities continue to expand, driving higher conversion rates for digital commerce platforms.

Strategic Financial Takeaways
1. Treasury Optimization: Corporate treasurers should leverage instant cross-border payment platforms to minimize liquidity buffers and foreign exchange exposure.
2. CBDC Integration: Financial institutions must prepare internal core banking systems to interface with emerging wholesale CBDC payment rails.
3. Merchant Fee Reduction: Enterprise merchants can lower payment processing overhead by adopting account-to-account (A2A) open banking checkout solutions.

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