Evergrande and stress in China’s property market

CHINA ADVISORY - Report 28 Sep 2020 by Andrew Collier

China’s property market has long been the weak link in the economy. It is the bubble that supports growth – including local consumption, fixed asset investment, and local government fiscal revenue. Although property sales remain healthy, the developers themselves are increasingly under financial strain. The case of Evergrande's reportedly requesting a bailout from the Guangdong government is one major example.

As a result, corporate, loan and bond defaults are rising. Beijing has been tightening credit to the property sector to reduce the potential risks of a real estate crisis. However, the current difficult economic conditions, along with a shortage of capital, have raised the risks to the sector. A “Minsky Moment” is most likely avoidable due to the ability of the state to shift capital, but significant risks remain to economic growth.

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