Chinese Authorities Warn Against Bailout for Troubled Real Estate Developers

Chinese Authorities Warn Against Bailout for Troubled Real Estate Developers

Chinese officials issued a stern warning against the possibility of a major bailout package for struggling real estate developers, asserting that those who harm the interests of the masses will face consequences.

Ni Hong, the Minister of Housing and Urban-Rural Development, emphasized that severely insolvent and operationally impaired real estate companies should either undergo bankruptcy proceedings or be restructured in accordance with laws and market principles. These remarks were made during a press conference held on Saturday.

In 2020, Beijing took stringent measures to curb speculation in the real estate market, significantly reducing developers’ high dependency on debt for growth. However, many developers found themselves running out of funds shortly to complete construction of apartments sold to buyers, often without completion in China. Some buyers stopped making mortgage payments due to boycotts.

Since then, authorities have announced measures to provide financing to some developers. However, the national stance on reducing the role of real estate in the economy has not changed.

This year’s annual government meeting emphasized investment in and development of the country’s top production capacities, with little mention of the massive real estate sector.

While the subject of real estate was scarcely mentioned in a press conference focusing on the economy last week, Ni spoke during a meeting focusing on “people’s livelihoods.”

Ni highlighted that officials would encourage home sales and the development of affordable housing while emphasizing the need for longer-term thinking.

Short-term changes in the real estate sector have a significant impact on China’s overall economy. When related sectors such as construction are included, real estate once accounted for approximately 25% of China’s GDP. UBS analysts estimated at the end of last year that the real estate sector now accounts for approximately 22% of the economy.

Last week, Premier Li Qiang stated in the government work report that China would “move faster to develop a new development model for real estate next year.”

The English version of the report stated: “We will increase state-supported housing construction and supply to meet people’s basic needs for living and diverse demands for better homes, and improve the basic systems for commercial housing.”