China developers: crunch puts Wanda movie units in the frame for sales

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Monday data confirmed the worst concerns of investors in China. Youth unemployment hit yet another record, second-quarter growth missed expectations, and property sales fell by the largest monthly drop this year. Stresses have also been reflected in snap asset sales by developers, such Dalian Wanda, which is whittling down its cinema investments.

China’s gross domestic product expanded just 0.8 per cent compared to the previous quarter. Exports are falling, retail sales are weak. 

The biggest red light came in the form of property data. Investment fell by 7.9 per cent in the first half, worse than expected. A shortlived rebound in the first quarter, in the sales and shares of developers, has turned out to be a false start.

Real estate and related businesses produce nearly a quarter of China’s gross domestic product. Official support, including regulatory easing, have done little to stem a decline in sales.

Dalian Wanda highlighted the dire state of local developers last week by selling a stake in China’s largest multiplex chain. Its decision to raise money from a cash cow, rather than real estate, undercuts claims from developers that they can raise money whenever needed by disposing of prime land and properties.

Wanda Investment, a subsidiary of Dalian Wanda, sold an 8.3 per cent stake in Wanda Film Holding, which has a total market value of $4.5bn. The cinemas business had been part of a decade-long effort to break into the global movie industry. In 2016, Dalian Wanda acquired Hollywood studio Legendary Entertainment, responsible for sci-fi blockbusters such as Dune and Godzilla vs. Kong.

Shares in Wanda Film have risen more than a fifth in the past year. Dalian Wanda has exploited this to offload small stakes to ease liquidity pressures. They are set to continue.

Some of Wanda’s peers lack significant non-real estate assets. For them, options are running out. They are trapped in a downward spiral of economic weakening and falling property values.