Evergrande was just the beginning. China's property sector is in trouble.
It's not clear that Xi Jingping's government has the tools to fix the problem
A free daily digest of the biggest news stories of the day - and the best features from our website
Thank you for signing up to TheWeek. You will receive a verification email shortly.
There was a problem. Please refresh the page and try again.
China’s long-running property sector crisis is somehow getting worse. CNN reported that Evergrande, the giant developer whose 2021 default set off the crisis, is unable to complete its debt restructuring plan thanks to an investigation into one of its subsidiaries. The result of that announcement? On Monday, Evergrande’s stock plunged 21% in Hong Kong stock trading — “dragging down the stocks of other Chinese property developers” and deepening an economic mess that has shaken China’s already fragile economy.
Evergrande and companies like it were “once a booming industry and a key driver of the country's economic growth,” Reuters reported. But Evergrande isn’t the only Chinese developer struggling with a huge debt load: Country Garden Holdings, which has 108.7 billion yuan (more than $14 billion in U.S. dollars) in bond repayments due over the next year, has also signaled that it is at risk of default. The compounding crises could “delay the prospect of a recovery of both the property market and the broader Chinese economy.”
Indeed, Bloomberg argued, the latest headlines from China’s property sector have “undercut Xi Jinping’s push” to end the economic malaise overtaking his country. Xi’s government has taken “measures to prop up housing demand” — including loosening of mortgage restrictions — in the hopes of keeping the industry afloat, but “China’s aging population and an oversupply of housing” may mean there’s only so much officials can do.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
'Companies have pulled back'
The problems of big developers are hurting the little guys in China, The New York Times reported. “Small businesses and workers are owed hundreds of billions of dollars” for completed work, and new development projects are no longer in the pipeline. That has rippled through the rest of the economy. “Companies have pulled back on hiring. Fewer and fewer people are buying homes.”
Will China’s problems spread to the West? Maybe not. “The reality is that the world is now a little less exposed to China than it used to be even a few years ago,” Cornell University’s Eswar Prasad said in an interview with The New Yorker. A Chinese stock market crash might not have a “huge negative effect” on American stocks. It’s true that “commodity-exporting countries, oil-exporting countries” might be hurt by the faltering Chinese economy, but “U.S. exports to China are limited” which means that Americans should mostly avoid “the dampening effect” of the property crisis.
The effects aren’t just economic. Business Insider pointed out that President Biden believes the property crisis reduces the possibility of a China-U.S. conflict over Taiwan. "He has his hands full right now," Biden said of Xi earlier this month. Xi’s efforts to spur his country’s economy are faltering, and some observers fear that means China might ratchet up its designs on Taiwan. Biden disagrees. "I don't think it's going to cause China to invade Taiwan,” Biden said. “Matter of fact the opposite, [the country] probably doesn't have the same capacity as it had before.”
'A decade's work in front of us'
The struggle continues. South China Morning Post reported that Moody’s Investors Service has downgraded its analysis of the country’s property sector from “stable” to “negative.” That news “only increases the likelihood of more forceful and broad-based policy support” from Xi’s government in the coming months. But that stimulus will probably only stabilize the sector, not revive it. “A major stimulus-fueled rebound in China’s housing market is highly unlikely.”
So how long will it take to pull out of the crisis? Possibly a long time. “Fixing the property sector may be a multi-year or even a decade’s work in front of us,” economist Hao Hong told CNBC. One of the obstacles: The Chinese housing market is already vastly overbuilt — there are more homes and apartments available than people to fill them. “There is now an oversupply of real estate ... 1.4 billion people may not be able to live in them,” a former official said recently. Even with loosened mortgage rules, Chinese homebuyers probably won’t be able to save their country’s economy.
Continue reading for free
We hope you're enjoying The Week's refreshingly open-minded journalism.
Subscribed to The Week? Register your account with the same email as your subscription.
Sign up to our 10 Things You Need to Know Today newsletter
A free daily digest of the biggest news stories of the day - and the best features from our website
Joel Mathis is a freelance writer who lives in Lawrence, Kansas with his wife and son. He spent nine years as a syndicated columnist, co-writing the RedBlueAmerica column as the liberal half of a point-counterpoint duo. His honors include awards for best online commentary from the Online News Association and (twice) from the City and Regional Magazine Association.
-
Ben Fountain's 6 favorite books about Haiti
Feature The award-winning author recommends works by Marie Vieux-Chauvet, Katherine Dunham and more
By The Week Staff Published
-
6 picturesque homes in apartments abroad
Feature Featuring a wall of windows in Costa Rica and a luxury department store-turned-home in New Zealand
By The Week Staff Published
-
Why 2023 has been the year of strikes and labor movements
The Explainer From Hollywood to auto factories, workers are taking to the picket lines
By Justin Klawans Published
-
Why the FTC antitrust lawsuit against Amazon is so consequential
Talking Point While it's not the first case the federal agency brought against the company, it might be the biggest challenge yet
By Theara Coleman Published
-
What Trump's New York fraud conviction means for his business empire
Speed Read A New York judge has ordered many of Trump's companies to be placed into receivership and dissolved, but questions remain
By Peter Weber Published
-
China: a superpower’s slump
The Explainer After 40 years of explosive growth, China’s economy is now in deep distress — with no turnaround in sight
By The Week Staff Published
-
Is it time to end the China trade war?
Talking Point The U.S. aims to dial down China trade tensions after years of tit-for-tat tariffs and bans on advanced technology sales
By Harold Maass Published
-
Why shopping app Temu could be cause for consumer concern
Talking Point Are brazenly low prices enough to disregard dubious business practices?
By Brigid Kennedy Published
-
The daily business briefing: August 29, 2023
Business Briefing Transportation Department fines American Airlines $4.1 million over tarmac delays, glitch forces Toyota to halt production at its 14 Japan plants, and more
By Harold Maass Published
-
The AI stock market wave: chancing an Arm?
Talking Point The SoftBank-owned British chip designer has started the countdown for a Nasdaq IPO in a snub to the London Stock Exchange
By The Week Staff Published
-
China: A slowdown sends tremors worldwide
feature Could this be good news for the United States?
By The Week Staff Published