China’s real estate woes worsen

The Hong Kong Stock Exchange today (Thursday) announced the suspension of trade for shares in China Evergrande Group, the world’s most indebted property developer.

What’s going on? The real estate sector makes up 24% of China’s GDP, and it’s been in trouble for a while now.

For years, developers there were pre-selling homes, leveraging the cash from one project to start building others. But Beijing tapped the brakes on excess borrowing in 2020, and the music stopped: buying slowed, prices stalled, and Evergrande started defaulting on its $300B+ debt the next year.

So, what’s Beijing doing about it?

Meanwhile, Evergrande and others are still missing debt repayments, and the world continues to wonder if there’s a “Lehman moment” on the horizon.

Intrigue’s take: Folks in China (like everywhere else) have a chunk of their savings tied to their homes. And construction in China (like almost every other sector there) hoovers up global inputs. So trouble there can mean trouble everywhere.

German economist Isabella Weber made waves with her 2021 book on China’s unique (if imperfect) history of navigating economic challenges. But this latest challenge feels unique in its complexity, and the most promising solutions (like direct cash transfers to households) have political implications.

That’s partly what’s tying Beijing’s hands right now.

Also worth noting:

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