What if China’s property giants collapse?
The highly indebted Chinese property developer Evergrande can no longer service its debts in the US and filed for bankruptcy protection in Manhattan on Thursday, according to media reports. And now in China itself, Country Garden, another property giant, has run out of money. Is China’s real estate business on the brink of collapse? Is a financial crisis looming? Probably not, commentators say.
Ticking time bomb
El País compares the situation with that in Spain just before the 2008 economic crisis:
“Taken together, construction and all related activities amount to almost 30 percent of China’s GDP — a higher percentage than that in Spain in the years before the bubble burst. ... The recent announcement by Evergrande, China’s second-largest property developer, that it is filing for bankruptcy in the United States only adds to the lack of trust. ... Joe Biden called the situation a ‘ticking time bomb’. ... A growing number of investors have decided to diversify their Asian businesses to avoid a concentration of risk. ... The fact that the world’s second-largest economy is facing such severe risks is a threat to the global economy.”
Not a Lehman moment
The crisis will not spread beyond the Chinese economy, Les Echos predicts:
“Some market operators believe that China is experiencing its ‘Lehman moment’. ... But this worst-case scenario does not hold water. Even if the figures are sketchy and not yet really clear, we can be fairly sure that the degree of exposure of global finances to loans contracted by Chinese property developers is relatively low. Far more worrying, however, is the impact of this crisis on the Chinese economy itself. It was already struggling to get its growth back on track after the pandemic and the current real estate shock deprives Beijing of one of its most important tools for stimulating the economy.”
Creaking but not collapsing
Analysts are hopeful that China will be able to contain the crisis one more time, business portal Portfolio concurs:
“Global regulators are keeping a close eye on the chaos on China’s property market, fearing that other countries’ markets could be infected. ... The question now is whether the Chinese state will be able to cushion a real estate crisis once more after containing the Evergrande crisis in the past two years. For the time being, analysts believe that Beijing will also be able to bring this larger and more comprehensive crisis under control, but in the meantime they have all started to lower their GDP growth expectations.”
For China the bubble is the lesser evil
Beijing wants to prevent a disaster at all costs, Helsingin Sanomat believes:
“Population growth in China has come to a standstill and the birth rate has sunk rapidly. The population is ageing. ... Japan’s prolonged economic slump began much the same way: a period of deflation, debt, ageing and slow economic growth. If China wants to break out of this spiral, it must open its markets, clearly define the boundaries between state and economic interests and cooperate with the West. ... But China’s politicians see big risks on the way there. So it’s to be expected that China will keep its debt-financed real estate bubble afloat with loans year after year — and decade after decade.”