Economy

US Role in China's Real Estate Crisis: What Western Media Isn't Telling You

07:00 GMT, 11 August 2023
© Photo : Social media
Ilya Tsukanov
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Western business media have barely been able to conceal their delight in reporting on China's real estate downturn, meticulously detailing losses taken by the Asian nation’s property developers. But what has the West's role been in blowing up the bubble in the first place? China expert Thomas W. Pauken II told Sputnik what’s really going on.
Sputnik
Chinese billionaire Yang Huiyan became an overnight celebrity among Western business media this week, with the businesswoman (once Asia's richest woman) seeing her fortune shrink 84 percent (or 28.6 billion) since June 2021, including by 8.2 percent on Tuesday alone, amid reports that the real estate development company she runs could go bust.
Yang’s riches to rags story has titillated the mainstream media as Country Garden Holdings faces a potential $199 billion collapse if it doesn’t’ make payments on its dollar-denominated bonds, which came due Monday, in a month's time.
Yang has yet to match the record set by Hui Ka Yan, the Evergrande Group head who saw his fortune shrink by $42 billion after the developer defaulted in late 2021 and was taken over by the Chinese state.
Western business media are betting on Country Garden Holdings’ potentially “dwarfing” Evergrande’s collapse, and plunging the nation’s real estate sector into an even deeper crisis, and perhaps scaling back the Asian nation’s ambitions as it quickly moves to surpass the United States by nearly every major metric of economic growth, development and well-being.

What Western Business Media Won't Tell You About China

Throughout the real estate crunch, Western economists and media have chided China's authorities for the country’s “flawed and unsustainable economic development model,” regulatory loopholes, and ordinary Chinese people’s “greed” as the culprits responsible for blowing up a multi-trillion dollar real estate bubble.
But always absent from such conversations is the behind-the-scenes role played by Western investors in creating the crisis.
"The problem," veteran Asia-Pacific affairs expert Thomas Pauken II told Sputnik, is that China's property developers, many of them |closely connected to Western investors,| were pushed by these investors to act in a |very aggressive| manner, including by immediately parking money received from future homeowners into new projects, and thereby blowing up a bubble which would inevitably eventually pop.

"Evergrande had a lot of investments from Western investors, and they were pushing them to keep buying and get really aggressive in how they park all these properties and develop the properties. And so inevitably there was going to be a boom and bust cycle. And so it’s not just the homeowners that get hit. It’s not just the Chinese banks that get hit, but there’s a lot of Western investors who are part of that, they were investing into the property developers and they’re going to get hit hard as well," Pauken explained..

The observer cited US investment giant BlackRock as one of the major Western investors in China’s real estate. "BlackRock is actually struggling big time in their real estate investments and they’re not even paying back their investors anymore because they're losing so much money on these property and real estate development projects. They’re really getting hit hard by China. I’m not saying it's the same as the 2008 financial crisis, but there are a lot of similarities because of real estate," he said.
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Other Western private and institutional investors waded heavily into China’s real estate market in the run-up to the crisis, with Goldman Sachs joining BlackRock in making bullish investments even after the downturn caused by Evergrande’s collapse in 2021. The trend has continued into 2023, with investors reportedly now looking not only at housing, but foreclosed office buildings and factories, amid the Chinese government’s effort to crackdown on speculators.

"I had predicted that there was going to be a major downturn in China's real estate market a few years ago, I’ve predicted to many people to prepare for a 30-40 percent decline in property values…and this could go worldwide," Pauken, a specialist in the China-US economic relationship, added. "We should be ready for a major real estate property downturn, not just in China, but across the world. This is because what’s happening in our world, we're headed for economic dark times. And what’s going to be really hardest hit is going to be the real estate and commercial property market."

'Housing for Living, Not Speculation'

The Evergrande crisis provided Chinese authorities with an impetus to crack down on excessive debt and speculation in real estate, with the government unveiling a sweeping, 16-point plan last November to ensure the “stable and healthy development” of the sector, including tightening up loan requirements, new down payment thresholds, special loans for the “efficient and orderly” completion of housing starts, etc.
The measures were made possible after President Xi Jinping consolidated control over policy at the October 2022 Congress of the Chinese Communist Party toward China-centric development, a push toward multipolarity and away from the ‘Chimerica’ vision of US-dependent economic growth model promoted by some of his predecessors from the 80s onward.
"Houses are for living, not for speculation," Xi said in an address to the previous CCP Congress in 2017.
Evergrande's collapse, Country Garden Holdings' uncertain future, and large-scale Western involvement in stirring up the real estate crisis could give his government all the more reason to make good on this mantra.
EconomyChinaEvergrandeBlackRockhousinghousing crisishousing bubblepolicy
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