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https://www.bloomberg.com/news/articles/2023-08-23/china-real-estate-market-crisis-is-another-mess-for-xi-jinping?srnd=premium-europe Three years ago, China cracked down on a booming real estate sector to reduce risk and make homes more affordable—part of President Xi Jinping’s “common prosperity” drive. Beijing may have gone too far, it now seems. Country Garden Holdings Co., a developer that was once a pillar of the industry, is on the verge of default, suggesting no company is too big to fail. There are signs the situation is spiraling, too. More developers are on the brink, home prices are collapsing in smaller cities, and fears of contagion have spread to the nation’s $60 trillion financial system. When shadow bank Zhongrong International Trust Co. missed payments on dozens of high-yield investment products this month, investors protested outside its headquarters in the Chinese capital. “Property booms and busts are typically extreme but especially in China’s case,” says George Magnus, author of Red Flags: Why Xi’s China Is in Jeopardy. “The sector is so big in relation to the economy and so significant in terms of household savings and confidence.” ... While the property woes have spread to China’s giant commercial banks—the amount of soured real estate loans at the 10 biggest lenders will likely soar to $120 billion next year assuming the rate of nonperforming loans triples from 2022, according to Bloomberg Intelligence—the bigger concern is falling home prices. Official statistics show a steady drip of monthly declines of less than 1%; reports on the ground from agents show drops of 15% or more in some areas over the last two years. Even though it helps Beijing’s affordability push, the dropping home values have shattered consumer confidence. After years of price gains, Chinese consumers had come to see real estate as a can’t-miss investment, prompting some to buy multiple apartments to profit from the rally. For those who borrowed to do so, paying their expensive mortgages will make less and less sense the lower property values go. ... “With luck, and robust policymaking, China might transition to a less real-estate-dependent economy in the coming decade,” says Red Flags author Magnus. “But it could also be a very messy process and entail financial instability and economic and social disruption.”