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China’s Economy Is Now Facing the Consequences of Its High-Stakes Real Estate Gamble

China’s Economy Is Now Facing the Consequences of Its High-Stakes Real Estate Gamble

In 2021, Evergrande’s default marked the beginning of a real estate crisis that has rattled China’s economy, leading to the downfall of major companies and leaving over a million homebuyers in limbo. Recently, another beleaguered real estate firm, Country Garden, announced a depletion of funds, signaling that the worst might be yet to come. These companies collectively hold a staggering $500 billion in debt, and they face daunting challenges in the weeks ahead.

There are growing doubts about Beijing’s ability to mitigate the crisis as consumers show little interest in real estate purchases, even during the usually lucrative Golden Week holiday. The housing predicament presents a significant dilemma for China’s political leadership. They are endeavoring to reduce the nation’s long-standing reliance on real estate as an engine of economic growth, but this transition is exacerbating a crisis of confidence. Financial markets are questioning the sustainability of China’s economic success, and households are losing faith in the Chinese Communist Party’s pledge of a brighter economic future.

One disillusioned investor, Mr. Meng, who entrusted $300,000 to Evergrande’s wealth management arm and is still owed $194,000, expressed his change of heart, noting that he once had faith in the government and the party. He mentioned being warned by the police not to escalate his complaint to higher levels of government, a testament to how trust has been severely tested. He concluded, “Now I can only say that I am quite bitterly disappointed.”

Economists, investors, and central banks worldwide are sounding alarms about the potential threats to China’s financial stability and are urging Beijing to take action to stabilize the housing crisis. The chief economist of the International Monetary Fund, Pierre-Olivier Gourinchas, emphasized that China’s real estate crisis is eroding confidence and creating financial turmoil.

Chinese officials have attempted to support the flagging real estate market in recent weeks, but their efforts have yielded little results. Country Garden, for instance, failed to meet a payment on nearly $200 billion of debt on Tuesday and still has over 400,000 unsold apartments that remain unfinished.

This article is based on information from NEW YORK TIMES


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