Economists, investors and central banks around the world are warning of the risks to China’s financial stability, calling on Beijing to act to stabilise the housing crisis.
The International Monetary Fund’s chief economist, Pierre-Olivier Gourinchas, said last week that China’s real estate crisis was undermining confidence and causing financial difficulties.“The problem is serious,” he said at a summit of policymakers in Marrakech, Morocco. Both the World Bank and the IMF have cut their growth outlook for China’s economy.
How the real estate market came to be at the centre of China’s economy was long in the making. For years, everyone bet on housing. Local governments lined their coffers with the proceeds from selling land. Families invested in apartments. Jobs for builders, painters, landscapers and real estate agents were in abundance.Before its collapse set off the housing crisis, Evergrande was a story of success that ran alongside China’s growth.
Evergrande ramped up an industry practice of raising money by selling apartments before they were built. It also turned to employees, telling them to invest in short-term loans or lose out on bonuses. And it persuaded people who had already bought Evergrande apartments to buy investment products offering huge returns. Meng and his parents were promised 8 per cent and 9 per cent interest on their investments.