Last year, between becoming experts on vaccine effectiveness and Eastern European geopolitics, we all briefly became experts on China’s housing market. Evergrande, one of China’s largest property developers and one of the most indebted companies in the world, was on the brink of default.
Evergrande eventually did default on some of their debt but there wasn’t a catastrophic collapse that had a contagion effect throughout China’s financial system. But that didn’t mean the problem had past. No, in fact the past 12 months has seen an incredibly slow moving property collapse that continues to be the biggest risk to the Chinese economy.
Over the past 12 months Chinese property developers have defaulted on over US$20 billion in debt, housing sales have fallen 30% year-on-year and construction of new homes has stalled. As the property market collapses, and borrowers fall into negative equity, more and more Chinese borrowers are refusing to pay their mortgages.
This is one of President Xi’s biggest economic challenges (and comes just as he is seeking a third term as leader). While it is unlikely to turn into a US-style 2008 GFC, Chinese real estate is the world’s biggest asset class and there are plenty of challenges ahead in this slow-moving property crisis.
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