Opinion: The crisis in the property sector is one of China’s own making and it is getting deeper, sparking contagion fears for the rest of the economy, writes Stephen Bartholomeusz
The mortgagors’ revolt that has swept through China in recent weeks shouldn’t by itself trigger a banking crisis but it is another symptom of the cancer that is eroding one of the pillars of China’s economy.
The reason for the angst and anger of the homeowners is obvious. The property industry in China operates on a pre-sales model – the buyers pay for their properties, putting down a deposit and borrowing the rest, before construction starts. There is, however, the spectre of contagion. Already the protests by homebuyers are starting to be mirrored elsewhere, with suppliers to some of the projects refusing to pay their own bank loans because they haven’t been paid by developers.Among those developers is China Evergrande, the world’s most indebted property developer, with about $US300 billion of liabilities, and the company whose default on its offshore bonds last year brought home the scale of the crisis in China’s property sector.
Borrowers for incomplete apartment developments in China are refusing to make payments on their debts, exacerbating the existing crisis within China’s vital property sector.
Given the central role property has played in China’s economy and the coincidence of the property crisis with lockdowns flowing from China “zero COVID” policies, it perhaps isn’t surprising that China’s GDP growth slumped to a meagre 0.4 per cent in the second quarter. China’s authorities do, of course, have a lot more levers they can pull to avert crises than their more democratic counterparts.
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