![]() ![]() That is what has happened in China.”ĭebt to foreign investors are not the only problem. “The problem of course is if property prices ever stop rising, because everyone has made the same bet everyone’s balance sheet starts unravelling at the same time, and it immediately becomes a systemic problem. “Everyone made the same bet on inexorably rising property prices, especially the developers, who levered to the hilt, overpaid for land at auctions, and scooped up as much real estate risk as they could take on,” he said. ![]() Michael Pettis, professor of finance at Peking University, says the situation could morph into a systemic crisis that undermines the whole debt-ridden economy – the stuff of nightmares for Beijing’s political class, who are desperate to prevent contagion from the property crisis hurting ordinary Chinese. Crucially, China’s population is shrinking with the number of marriages – and therefore demand for new properties from young couples – down 31% in the six years to 2019. Prices fell 0.3% in November, the biggest fall since 2015, while the value of home sales plunged by 16.31% and new construction starts as measured by floor area fell 21.03%. The bond repayment burden threatens to worsen the crisis for developers, who have ridden a 30-year boom in the Chinese housing market on a business model based on cheap credit and never-ending demand from the country’s huge, upwardly mobile population.īut Xi Jinping’s anger at the sector’s excesses and his pursuit of “common prosperity” led to a crackdown that removed access to unlimited funding, and now key metrics are spelling the end of the good times. ![]() Nor is there any respite in the second quarter of 2022, when they must find another $18.5bn. That is almost twice as much as the $10.2bn they were faced with in the final quarter of 2021 – a burden that caused default at Evergrande and the threat of default at several other developers such as Kaisa. In total, China’s developers owe $19.8bn in dollar-denominated offshore debt in the first three months of 2022, analysts at Nomura said. ![]()
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