Only a few weeks ago, Beijing discussed grand plans for a government takeover of China’s residential property market. If Beijing were to proceed with such plans, it would disguise the crisis, leaving many problems unaddressed and creating new ones.
What has emerged, at least so far, are what Beijing calls “white lists.” These designate a few residential property developments for special financing. They will do even less to address the problem than the grand takeover plans and can only be characterized as too little, too late.
The “white list” scheme calls on local governments to identify failed property developments in their jurisdictions as candidates for special lending by China’s state-owned banks. The banks then review the lists and release funds to the approved projects. This first round consists of some 123.6 billion yuan (about $17.4 billion) for some 162 projects in 57 cities, including those connected to troubled private property developers, such as Country Garden, Sunac, and CIFI.
According to the material released by Beijing, the program will prioritize the completion of apartments for which Chinese homebuyers pre-paid but which remain incomplete because of the financial difficulties of the private developers. Undoubtedly, the homebuyers tied to these projects will be delighted with the news.
However, in the context of the larger problem of developers’ failures, this is truly a drop in the bucket. Consider when, in 2021, Evergrande first announced its inability to service financial obligations, approaching the equivalent of $300 billion. Since then, more developers—Country Garden prominently among them—have failed to add appreciably to the total amount of questionable debt outstanding.
If Beijing’s “white lists” are a step in the direction of a solution, they are a long way from an answer to China’s financial difficulties. Even at double, triple, or quadruple the size, this approach will leave hundreds of billions in questionable debt hanging over the nation’s financial system. This burden will continue, as it has since 2021, to constrain the ability of Chinese finance to support economic expansion and growth.
Nor will the “white lists” go nearly far enough to restore the lost confidence among homebuyers to put money at risk by actually making a purchase. China will continue to deal, as it has for months, with declining rates of homebuying. What may be worse, this decline in demand will likely continue to depress property values. The ill effects of those declines on household net worth will continue to constrain consumer spending and depress people’s general confidence in the future—all with ill effects on the overall economy’s growth prospects.
Nor will the “lists” address the legacy of overbuilding that continues to beset the property sector and Chinese growth generally. This problem is, in large part, the result of Beijing’s great enthusiasm for property development that lasted for years before 2020. At first, the policies of easy credit for developers and buyers, as well as local government involvement, met an urgent need. However, as the need was met—years ago, in fact—the continuation of such policies created a surplus of apartments, sometimes in dubious areas.
Then, in 2020, Beijing abruptly withdrew its support for development—so abruptly, in fact, that both highly leveraged developers and buyers had no time to adjust. That is what brought on the crisis. These excesses remain. According to official statistics, China currently has some 7 million unoccupied apartments. Especially because China’s population is shrinking, it will take years, if ever, for these apartments to offer a cash flow to service the still outstanding debt incurred to build them.
After years of Beijing doing nothing besides watching the property crisis unfold, the “white lists” are a welcome sign of action. But especially after years of official dithering that allowed financial and confidence problems to multiply, they are far from adequate, even if they become much more extensive.
