An Even Bigger Housing Crisis Threatens China’s Economy

China’s giant housing industry is lurching into a new crisis that threatens to be the country’s worst yet.

Two years ago, the debt-laden developer China Evergrande Group spiraled into insolvency, bursting the country’s real-estate bubble and setting off a chain of developer defaults and business losses. The industry’s troubles have dragged down China’s economy.

Now China’s largest privately run property developer, Country Garden, is struggling to survive. Unlike Evergrande, which was brought down by its profligate habits, Country Garden’s troubles come from the retreat of investors and home buyers from the industry.

Its financial distress could create far bigger problems for the economy and policy makers than Evergrande’s debt default in 2021. Country Garden focused much of its enormous footprint on rural cities and industrial zones, which were an engine of China’s growth in good times. Those areas are now wrestling with strained government finances and an accelerating exodus of residents, leaving them less able to absorb the fallout from a large developer’s failure.

China’s economy is also sputtering on many fronts after a short-lived rebound from its post-Covid reopening earlier this year.

Economists predict the housing industry’s problems will deal another big hit to consumer confidence and prolong what has already been a protracted property-sector downturn. Real estate and related industries contribute roughly a quarter of China’s gross domestic product.

“The whole industry is in trouble,” said Kenneth Rogoff, an economics professor at Harvard University, adding that the problems are particularly severe in smaller and medium-size cities. Years of overbuilding have resulted in a huge oversupply of homes, and there will need to be an adjustment in the property market, he added. “How do you prevent the Chinese population from going into a panic mode since most of its wealth might collapse? It’s not easy,” Rogoff said.

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