Stagnation in the People’s Republic
China wants to break up indebted construction companies
March 9, 2024, 2:02 p.m
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Several Chinese real estate companies are heavily in debt and construction projects are not being completed. The Chinese construction minister is threatening companies with bankruptcy and assuring creditors that the construction sector is simply undergoing change.
China has tightened its tone against struggling property developers in the ongoing real estate crisis. Companies that are no longer solvent and have lost their ability to do business should go bankrupt and reorganize, said China’s Housing and Rural Development Minister Ni Hong. “Conduct that harms the interests of the public will be investigated in accordance with the law so that they pay the price they deserve,” he said in the press conference with ministers from other departments on living standards, which took place on the sidelines of the convening People’s Congress.
China’s real estate crisis continues to weigh on the economy. Some creditors have taken legal action against property developers such as China Evergrande. The company, which is the world’s most indebted with the equivalent of more than $300 billion, is to be liquidated. The authorities initiated an investigation against the head of the southern Chinese company last fall – although no specific accusation is known. Country Garden, another giant company, is also facing a winding-up application in a Hong Kong court. The company is listed on the stock exchange there.
The real estate sector contributes about a fifth of China’s economic output. However, since prices and demand in the market have fallen, companies are lacking money to service their creditors. To the displeasure of many buyers, this also affects projects that have already been promised but are not completed.
Minister Ni emphasized that the government has already adjusted its policies, for example by cutting interest rates or for people who want to exchange their old apartment for a better one. Beijing wants to stabilize the market and help struggling companies. “The housing market is going through a transformation,” Ni said. He pointed out that the supply and demand situation in the real estate market varies from city to city. Beijing therefore wants to coordinate the financing of housing projects with local governments.