In China, the threat of the most serious real estate crisis in history

In China, the threat of the most serious real estate crisis in history

The Guardian does not go overboard: according to the British daily, it is the “worst real estate crisis the world has ever known” who could right now profile in china.

Following of the costly misadventures of the juggernaut Evergrandethe expected slump would be so brutal that it could shake the regime of Xi Jinping and, above all, put a little more in danger an already struggling global economy.

A few days ago, leaked memo signed by Huawei boss Ren Zhengfei, ignited Chinese social networks. The tycoon thus announced to China as to the world a decade of deep economic difficulties, from which no one would escape, in the Middle Kingdom as elsewhere.

Enough to panic a little more the Chinese owners who, en masse, have decided in recent weeks to conduct a “reimbursement strike”particularly in the face of the difficulties encountered by more or less honest promoters to complete the countless projects launched but never finished.

The market, which has seen a 40% drop in rentals this year following a takeover by the Chinese Communist Party, is colossal. According to the Guardian, it weighs in the country a whopping between 55 and 60 trillion dollars, more than all the companies listed on the American stock exchanges.

It has been driving the country’s growth for two decades, but has come to a standstill. Since the Evergrande disasterreal estate developers are facing increased surveillance of their activities and the once unlimited loans granted to them.

In some parts of the country, prices are collapsing, and demand is becoming increasingly scarce; extremely strict policy of the Chinese government in the face of Covid-19 does nothing to help the activity of the sector. Everywhere, unfinished buildings dot the landscape and the country would understand 65 million uninhabited dwellingssigns of the crisis that has been emerging for several seasons already.

Card castle

The country’s authorities could decide to loosen the reins a little again to offer promoters access to new credit lines, but this would be the sign of an error in past policy. A weakness that the government of Xi Jinping, which no longer tolerates pure speculation around the housing market, probably does not want to allow itself.

“There has been a complete collapse of confidence in the housing market. No industry can survive this.”explains to the Guardian Gabriel Wildau, expert for the firm Teneo.

This is all the more serious in that if the Chinese industrial sector has so far made better than resist to the global slowdown following the Covid-19 crisis, it could, in a context of Russian war in Ukraine, energy crisis and galloping inflation, come back to haunt the country’s economy like a boomerang. The firedamp incident is already noticeable throughout Asia.

A dangerous cocktail for the country, its leaders, as well as for the world as a whole. chief strategist for the Australian firm Nucelus Wealth, David Llewellyn-Smith is not the most optimistic about what is to come.

“The private sector is being crucified by Omicron, exports are crushed by weak aggregate demand, and the public sector is doing what it can to restore some order but has to deal with some timidity in terms of fiscal policy . It’s a very toxic combo for China. Very complex to manage.”

A Chinese recession cannot therefore be ruled out, and this would obviously have major repercussions for the rest of the world’s economies. If the country’s colossal real estate market were to collapse altogether, the worst-case scenario seems even more plausible, and even massive central government intervention might not be enough.

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