China’s Real Estate Developers Won’t Receive Major Bailout, Warns Chinese Government
China’s struggle in the real estate sector seems to be far from over, as the Chinese government has made it clear that major real estate developers will not be receiving a substantial bailout. The government has warned that those who “harm the interests of the masses” will face severe punishment. This announcement comes amidst a backdrop of increased financial difficulties for companies like Evergrande and Country Garden, and a drop in new home sales, questioning the future of the real estate business in China.
A Firm Stance and Resolute Action
The Minister of Housing and Urban-Rural Development, Ni Hong, made the Chinese government’s position known during a press conference. He stated, “For real estate companies that are seriously insolvent and have lost the ability to operate, those that must go bankrupt should go bankrupt, or be restructured, in accordance with the law and market principles.” Ni emphasized that those who commit acts detrimental to the masses’ interests will be thoroughly investigated and punished accordingly, ensuring they pay the due price. The government’s firm stance shows its determination to tackle the real estate sector’s challenges.
China’s Real Estate Woes and the Plight of High Debt
In an effort to curb property market speculation, Beijing took action in 2020 to limit the real estate industry’s reliance on debt for growth. However, this action had unintended consequences. Many developers faced a financial crunch and ran out of funds to complete construction projects, leaving homebuyers in doubt and causing some to boycott mortgage payments. To alleviate this predicament, some developers were provided with financing, but the government’s overall approach to reducing the real estate sector’s role in the economy remains unchanged.
Focusing on Manufacturing, Less Emphasis on Real Estate
This year’s government gathering highlighted China’s investment in developing high-end manufacturing capabilities. Surprisingly, the real estate sector received significantly less attention during the event. Real estate-related discussions were minimal during an economy-focused press conference, while Ni made his statements during a meeting that prioritized “people’s livelihoods.” Ni expressed the government’s commitment to promote housing sales, affordable housing development, and emphasized the importance of long-term planning, considering the significant near-term impact of the property sector on China’s economy.
China’s Real Estate Sector and Its Contribution to GDP
In the past, the real estate sector, including construction, accounted for approximately 25% of China’s GDP. However, according to UBS analysts’ estimation, this figure has now reduced to about 22% of the economy. Premier Li Qiang’s recent government work report highlighted the need to foster a new development model for real estate. It emphasized the government’s commitment to increasing the supply of government-subsidized housing and improving the infrastructure for commodity housing, catering to the diverse housing needs of the population.
