Boom & Bust

Episode · 2015– · Shenzhen & Beijing

China’s Property Squeeze

The largest asset class on earth meets three red lines

~25% of Chinese GDP tied to property at the peak
$300bn Evergrande liabilities at default, 2021
70% of Chinese household wealth held in housing
Household savingscapital controls, few options Developerspresales fund more land Apartmentsbought unbuilt, as savings Collateral valuesrise land sales paid for zoning more land
Buyers paid for apartments years before construction, and developers spent the money on more land. The model needed prices to keep rising and buyers to keep trusting — which held for two decades.

Chinese housing became the largest asset class in the world by doing something no other bubble in this collection did: it lasted long enough that a generation grew up assuming it could not fall. Households had capital controls limiting foreign investment, a shallow domestic stock market with a poor reputation, and deposit rates below inflation. Property was where savings went — roughly seventy percent of household wealth, much of it in apartments bought as stores of value rather than homes.

The supply side ran on presales. Developers collected payment for apartments years before completion and used the cash to buy more land from local governments, which depended on land sales for a large share of their revenue and therefore had every reason to keep the cycle turning. Evergrande industrialised the model, growing on debt into the world’s most indebted property company.

Beijing recognised the risk and, in August 2020, tried to deflate it deliberately with the “three red lines” — leverage limits that cut developers off from new borrowing. The intent was a controlled descent. Evergrande defaulted in late 2021, Country Garden followed, presold apartments went unbuilt, and in 2022 buyers in more than a hundred cities refused to pay mortgages on homes that did not exist.

This is the one episode here that is still running, which is why the site ends with it. The Chinese state has tools no 1929 official possessed — state-owned banks, capital controls, direct instruction — and it is using them to stretch the deflation over years rather than months. Whether that avoids the reckoning or merely lengthens it is the open question the book’s epilogue leaves standing.

What it cost

The bill for this one is still being added up, and its largest number is an estimate rather than a count. Nomura’s chief China economist, Ting Lu, put the homes pre-sold between 2015 and 2020 that were still unbuilt at around 20 million in November 2023, and the cost of finishing them at some $448 billion. What the buyers did about it is on the record.

  • ~20 million homes pre-sold between 2015 and 2020 and still unbuilt — an estimate by Nomura’s chief China economist, Ting Lu, not an official count; it assumes the units are on average half finished and puts the cost of completing them at about $448 billion Joyce Huang, China’s Residential Property Sector Filled With Livid Buyers of Unfinished Units, Voice of America, 29 December 2023, reporting Ting Lu’s mid-November 2023 estimate
  • 343 housing projects, in 119 cities, whose buyers announced between July and September 2022 that they would stop paying their mortgages until construction resumed. Henan had the most boycotted projects, 69; Evergrande had the most as a developer, 86 Freedom House, China Dissent Monitor, Issue 1: June–September 2022, featured analysis Homeless Home Buyers — Stalled Housing Projects and Mortgage Boycotts, on the count kept by the GitHub group WeNeedHome
  • 21.3% urban unemployment among 16- to 24-year-olds in June 2023, against 4.1% for those aged 25 to 59. The National Bureau of Statistics suspended the age-group series on 15 August 2023, saying the measure needed revising because more young people were in education, and resumed it six months later on a basis that excludes students, at 14.9% for December National Bureau of Statistics of China, National Economy Showed Good Momentum of Recovery in the First Half Year, 17 July 2023; VOA Mandarin, China Halts Publication of Youth Unemployment Report as Numbers Hit Record High, Voice of America, 16 August 2023, on the National Bureau of Statistics news conference of 15 August; Nicole Goldin, Youth unemployment in China: New metric, same mess, Atlantic Council, 16 February 2024

A family buys an apartment years before it exists and starts paying the mortgage at once. When the block stalls they go on paying that mortgage, on a home that was never built, and rent on the one they actually live in. The China Dissent Monitor found buyers who could not carry both moving into the shells: no windows, no lifts, no water, no electricity. In one case it recorded, more than a hundred buyers in Xi’an occupied a stalled project to press the developer, Huayue Enterprise, to finish it.

Freedom House, China Dissent Monitor, Issue 1: June–September 2022, featured analysis Homeless Home Buyers — Stalled Housing Projects and Mortgage Boycotts

What followed

No government fell. Beijing announced a rescue fund for stalled projects in September 2022 and, that November, steps to push more bank finance to developers, later easing their borrowing and repayment rules; the China Dissent Monitor found housing protests down from the summer 2022 peak but no less frequent after those measures than before them. Evergrande itself was wound up on 29 January 2024 by the Hong Kong High Court, which found it insolvent and without a viable restructuring proposal. The policy changed; the count of unbuilt flats is still open.

Freedom House, China Dissent Monitor, Issue 1: June–September 2022 and Issue 3: January–March 2023; NPR, Hong Kong court orders China’s Evergrande, which owes $300 billion, to liquidate, 29 January 2024

Phases on show: displacementboomeuphoriadistress