China's real estate market has been a major driver of economic growth, but it's now facing a crisis. The podcast explores the history of the market, including bribery and luxury, and delves into the current troubles faced by property developers. It also examines the actions taken by the Chinese government, such as debt caps and price drops, and discusses the potential economic consequences for China.
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Quick takeaways
China's real estate growth was fueled by land sales and high-risk leveraging by property developers.
Tighter regulations and a market slowdown in 2020 led to a crisis in China's real estate market.
Deep dives
Chapter One: Birth of the Property Market
In the 1980s, China embarked on economic reforms that allowed people to run their own businesses and keep more of their profits. To make up for reduced tax revenues, the central government started taking in more money at the expense of local governments. Local governments realized they could make money by selling 70-year land leases for residential developments. The abundance of buyers led to a construction boom, but local officials became dependent on land sales to fund services and meet growth targets.
Chapter Two: How Real Estate Grew in China
China's real estate market experienced exponential growth as more people transitioned from not owning private property to becoming homeowners. The increasing demand led to rising prices and real estate became a popular investment. Property developers borrowed massive amounts of money to build apartments, and the pressure to keep up with competitors led to high-risk leveraging. This period saw the emergence of immensely wealthy developers engaged in lavish spending and elaborate bribes.
Chapter Three: The Crisis in China's Real Estate Market
In 2017, Chinese President Xi Jinping sparked a shift in real estate policy by criticizing speculative property buying. Tighter regulations followed, including caps on developer debt. The market slowdown intensified in 2020, with many developers defaulting on debts and housing prices dropping. Evergrande, one of China's largest developers, amassed massive debt, leading to missed payments and the arrest of its founder. The government now grapples with deflating the property market while minimizing potential economic fallout.
China's economic growth for the past few decades has been extraordinary. And much of that growth was fueled by real estate – it was like this miraculous economic engine for the country. But recently, that engine seems to have stopped working. And that has raised all kinds of questions not just for China but also for the global economy.
Today on the show, we look at what's happening inside China's real estate market. And we try to answer the question: how did we get here?