The Chinese economy continues to sink, apparently irrevocably. Now, the debtors in the real estate sector refuse to continue paying their mortgages early. They are tired of losing their life savings due to the industry’s failures.
Those interested in housing from companies linked to the Chinese regime are losing confidence in this industry after a year of falling sales, stalled projects, thousands of abandoned new apartments, and non-payment of developer debts.
Usually, more than 85% of Chinese homes are sold before they are built, whereas the percentage was 50% in 2005; moreover, mortgages start months or even years before the properties are delivered.
While pre-sales are also offered in other countries, Chinese Communist Party regulations force buyers to pay for the property in full before they are completed.
In addition, the penalties for builders who fail to honor contracts paid in full are unclear, leading to large-scale million-dollar swindles.
In addition, construction companies are allied with banks that facilitate credit, and local authorities also get involved with minor regulations. This mix of regulations ends up blocking the transparency of commercial operations.
Often, the money from buyers’ payments is used for other activities and investments, so there is not enough left to finish the contracted works.
Many builders get involved in pyramid-structured businesses, which obtain incredible amounts of money without a solid backing. In this way, they create gigantic real estate bubbles that, when they burst, ruin many people.
The proportions reached by this economic disaster are so significant that they could cause the final collapse of the Chinese regime.
The reaction of frustrated buyers
In the middle of this month, a movement of frustrated homeowners threatened to stop paying their mortgages on homes under construction, and the announcement spread like wildfire through Chinese social networks.
Many buyers said they would stop payments if developers failed to deliver the contracted apartments. Complaints are also being made from abroad.
Moreover, several customer groups across China wrote to local regulators and banks, advising them of their decisions in this regard. As a result, the complaints were filed months ago, albeit on a smaller scale, and have already appeared in more than 86 cities.
These letters link at least 14 projects affecting 46,000 homebuyers, valued at some $5.21 billion, and the movement continues to grow as 84 more projects are cited on social media.
Another list registers more than 300 developments worth more than $51 billion. Amid their anger, those affected have called these projects “Rotten Tail Constructions.”
On one occasion, more than a thousand victims of one of the defaulted developments surrounded the premises of the Banking and Insurance Regulatory Commission of the city-prefecture of Xi’an, Shaanxi province, tirelessly shouting, “No more mortgage payments, No more illegal loans!”
The overheated real estate sector, one of the central pillars of the national economy, is already threatening a destructive downward spiral.
According to Lehman Brothers, tens of thousands of Chinese are now refusing to continue paying their mortgages because their apartment complexes remain half-built.
The business magazine “Caixin” reported that hundreds of suppliers to large construction developers can no longer pay their bills.
In this regard, the CCP media warns that the financial system’s stability could be affected if more homebuyers follow suit.
Goldman Sachs Group Inc. chief China economist Hui Shan argues, “The core issue here is for the government to step in quickly to boost confidence, to solve the problem at hand, and also provide more clarity to the market and investors on how this downturn in the property sector is going to be resolved.”
And a managing director at global business advisory firm Teneo, Gabriel Wildau, said, “In a worst-case scenario, the issue could trigger systemic financial risk and social instability, given housing’s role as a bedrock of the broader financial system.”
The alarm caused by these threats further plunged Hong Kong-listed property stocks on July 13. Some of them fell in price by between 8% and 13%.
For journalist Jennifer Zeng: “This is something that has never happened before, and some say the consequences will be 100 times worse than the 2008 financial crisis in the U.S. and the world.”
If so, the impact of this default would further exacerbate the current real estate crisis, dealing a definitive blow to the already badly ailing CCP economy, and, of course, to the precarious living standards of many millions of Chinese.
The losses of the Chinese regime’s managed economy
The damage resulting from the suspension of payments by real estate buyers would be in addition to that caused by the closures due to the consecutive epidemics, high oil prices and the depreciation of the yuan, among others.
The prolonged real estate crisis has broken the capital chain of real estate developers, severely affecting the financial system and the steel industry.
It is foreseeable that the entire chain of related industries will also suffer economic losses.
At least six steel enterprises, including Longyan Shixing Iron and Steel in Fujian Province, have gone bankrupt since the beginning of this year.
In addition, 28 steel companies have suspended operations. Another 247 have suffered heavy losses. As a result, the country’s steel industry would decrease its capacity from the end of 2022 or 2023.
Against a broader backdrop, the country’s GDP grew by only 0.4% year-on-year in the second quarter, and contracted by 2.6% compared to the first quarter, according to China’s National Bureau of Statistics.
Furthermore, although the Chinese regime projected GDP growth of 5.5% this year, this does not appear to be possible, and the International Monetary Fund lowered its forecast for China to around 4%. As a result, a 6% growth requirement is imposed for the second half of the year.
Deteriorating living standards under the CCP
As can be imagined, those who end up suffering the greatest impact of the collapse of the economy under the CCP are the people, who are helpless and powerless in the face of this situation. As a result, millions of them lost their jobs.
During the first half of this year, 460,000 enterprises closed down, and some 3.1 million domestic businesses disappeared, according to a video by Professor Zheng Yuhuang of Beijing’s Tsinghua University.
At the same time, youth unemployment in the cities is such that almost one in five young people between 16 and 24 years of age has no income. In addition, nearly eleven million college graduates are entering the job market during the year.
After a long struggle by their families and despite their good qualifications, many of them will have to accept precarious jobs. According to U.S. bank Merill Lynch estimates, youth unemployment could rise to 23% in the remainder of 2022.
As if that were not enough, all the market giants have laid off a large part of their employees, in double-digit percentages. Companies that reduced their payrolls range from Alibaba to Tencent to the streaming service Iqiyi.
In this context, the People’s Republic is far from the “common prosperity” promised by the leaders of the Chinese regime.
According to data from the National Bureau of Statistics, more than 960 million citizens, out of a population of 1.4 billion, have to make do with a monthly income of less than $290.
Also, some official agencies foresee that 400 million people will be working in sporadic, unstable jobs in the coming years.
In this regard, Aboluowang media raised the question: Does this imply that the Chinese regime plans to bankrupt more private businesses?
In addition, the low income of the population substantially reduces its contribution to the gross domestic product, and this leads to a weakening of domestic consumption. Moreover, according to the People’s Bank of China, 58.3% of the population is inclined to save their money rather than spend it.
And a Chinese website Winshang, which focuses on the commercial real estate industry, shows that the average daily patronage in China’s shopping malls from January to April decreased by 19%, compared to the same period last year.
On the other hand, many wealthier people are considering moving abroad instead of registering social solidarity.
Some estimates indicate that some 15,000 millionaires plan to leave China this year, taking with them a fortune of $48 billion. Already many high-ranking officials and wealthy individuals have moved their wives, children and property abroad.
For these people, it is still possible to emigrate, although it is becoming increasingly difficult to transfer their wealth abroad.
According to Lai Jianping, professor of international law at the China University of Political Science and Law, the whole of China is like a dangerous wall that is about to collapse at any moment. So anyone who can walk wants to leave the country as soon as possible.