China: Next real estate giant on the ropes

Chinese policymakers are facing calls to do more to prop up the ailing real estate market after the largest property developer, Country Garden, warned of multibillion-dollar losses and missed bond payments. Until recently, Country Garden appeared to have been spared from the real estate downturn that took hold in China during the pandemic when the government of President Xi Jinping placed limits on how much debt property developers could take on. Over the previous two decades, as the Chinese population grew more wealthy, an unprecedented construction boom led to a quadrupling in real estate prices. "When the China Evergrande crisis unfolded, people feared that others would follow, but certainly not Country Garden. It was much less leveraged than Evergrande," Alicia Garcia-Herrero, chief economist for Asia Pacific at the French investment bank Natixis, told DW. "Without a continual increase in prices, the whole real estate model is unsustainable and even a company like Country Garden can't make it," added Garcia-Herrero, who is based in Hong Kong. Having already offered some support to developers and incentives for first-time home buyers and upgraders, China's leaders are "Very likely" to bail out Country Garden, Pushan Dutt, an economics professor at INSEAD business school in Singapore, told DW. "China has struggled with the problem of imbalanced growth driven by investments with real estate taking the lead for more than a decade," Dutt said. As China's real estate sector contributes as much as 30% of the country's gross domestic product, any collapse of Country Garden would have a damaging impact on the entire financial system. Others are less convinced of direct intervention, including Maggie Hu, assistant professor of real estate and finance at the Chinese University of Hong Kong, who told DW the odds of a Country Garden bailout were "Quite low."