Evergrande's Woes To Ruin China's Growth Model

Add “malicious price-cutting” to the growing lexicon of Xi Jinping’s China. The phrase has cropped up in the past but is being increasingly used by provincial authorities to decry property developers’ attempts to slash home prices.

Photo Insert: An Evergrande project in China

Some developers, desperate to bring in revenue, are offering discounts of as much as 30%. Officials, fearing that the price cuts might frustrate recent home buyers and lead to protests and distortions in the property market, have banned discounts and regard them as undermining social stability, The Economist Today reported late on Sept. 29, 2021.

In the central city of Yueyang, the government has told developers to stop increasing prices but also to refrain from reducing them by more than 15%. In such cases both regulators and developers are walking a tightrope, teetering between sky-high prices and a damaging downturn.

The property market is probably the single largest driver of the country’s economy. Urban Chinese have flocked to it as a haven. House prices have soared over the past 15 years, often by more than 10% a year in large cities. Yet developers have borrowed huge amounts in the process.

The industry’s total debt is about 18.4-trillion yuan ($2.8 trillion, equivalent to 18% of GDP), according to Morgan Stanley, a bank. Housing costs, relative to incomes, now make large Chinese cities some of the least affordable places in the world.

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