The real estate market in China has actually contributed to around a quarter of the country’s total GDP over the past decade. But now China’s real estate sector has been abused, triggering a series of effects that have stifled the growth of the world’s second largest economy.
Launching the Financial Times on Tuesday (10/5/2022), one of the victims of China’s gloomy economy is Lucy Wang. She is one of the buyers of an apartment under construction in the northern city of Zhengzhou.
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He has already paid an advance of US $ 34,839. For a young woman from a peasant village, it was a huge sum of money. In fact, half of the advance she paid was money from her parents, who over the years had set aside a small portion of her savings from selling the potatoes and corn they had grown on the family business.
In fact, the construction process of the apartment that Wang bought was proceeding normally. Until last October last year, the construction of his condominium suddenly stopped. Initially, developer Meiling International House was coy when construction would resume. Then the representatives of the company began to come up with meaningless excuses.
In July, Wang’s hopes vanished. The local real estate office informed him and other buyers that their money had been stolen. “I have lost faith in the developers. This has ruined my life,” he said.
Wang is one of the victims of China’s growing economic depression. Logan Wright, a consulting partner of the Rhodium Group based in Hong Kong, said this situation shows that the financial crisis is slow and the real estate sector will slowly crumble.
What started out as a real estate crisis China characterized by the collapse of apartment sales and a series of debt defaults by many developers. So the condition has now turned into a financial crisis at the local government level.
With the market crash, thousands of local government financial vehicles (LGFVs), which have provided the main driver for growth since the financial crisis, are running out of funds or on the verge of unprecedented default, analysts said. Local governments have long relied on the sale of land to property developers to balance their accounts.
A slump in the housing market, a slow local government investment engine and a heavy burden of national debt mark the end of a growth model that has not only transformed China, but is also the largest generator of global economic expansion. one year.
Dan Wang, chief economist at Hang Seng Bank, a Hong Kong-based bank with significant operations in China mainland, he said the economy has reached a tipping point. “The old model of infrastructure and housing is pretty much gone,” she said.
One of the next twists, according to Wright, will likely be LGFV’s unprecedented default on the national bonds they issue.