\n
![](\"https:\/\/content.fortune.com\/wp-content\/uploads\/2024\/03\/GettyImages-2061967575-e1710173367148.jpg?w=2048\")
<\/p>\n [ad_1]
\n<\/p>\n
Chinese real estate developers desperate for a government lifeline are getting the opposite\u2014survival of the fittest. According to Chinese Minister of Housing and Urban-Rural Development Ni Hong, \u201creal estate companies that are seriously insolvent and have lost the ability to operate\u2026must go bankrupt.\u201d<\/p>\n
When the Chinese government started cutting off debt financing to the country\u2019s massive property developers in 2020, it sent the $5 trillion real estate sector<\/a> into a tailspin. Without easy access to cheap government cash, builders quickly ran out of money,<\/a> leaving apartment buildings half-finished and sinking property values. Evergrande, the country\u2019s largest developer, was worth $50 billion in 2017<\/a>\u2014but after a near-total collapse, its debt is now trading at less than one cent on the dollar<\/a>.<\/p>\n Speaking at a press conference held alongside China\u2019s annual parliamentary meetings<\/a> on Saturday, Ni said that the government was drawing a line in the sand on bailouts\u2014and that when it comes to legal recourse, property developers guilty of mismanagement are on their own.<\/p>\n \u201cThose who commit acts that harm the interests of the masses will be resolutely investigated and punished in accordance with the law,\u201d Ni said. \u201cThey will be made to pay the due price.\u201d<\/p>\n The downturn is a reversal from the past. At one point, China\u2019s property sector contributed about 30% of the country\u2019s entire GDP<\/a>. Fitch Ratings last November called Chinese real estate the \u201cmost important single sector of the global economy.\u201d<\/a><\/p>\n Since then, China\u2019s slumping property sector has weighed heavily on its national economy. The massive debt burdens developers took on to pay for billions in new construction came back to bite them during the pandemic, which spiraled into a bona fide crisis. Homeowners were paying mortgages on new apartments that weren\u2019t finished, which sparked massive mortgage boycotts<\/a> that squeezed developers even more. The $50 billion developer Evergrande is being liquidated in a Hong Kong court right now<\/a>, and Country Garden, the country\u2019s largest private developer, missed a $200 million debt payment last month<\/a>. Total Chinese property sales were down almost 20% in 2024<\/a>, across both massive national and smaller regional developers. (State-owned companies control almost 90% of the national market.<\/a>)\u00a0<\/p>\n The property sector\u2019s downturn led the IMF to downgrade its growth estimates for the Chinese economy<\/a>. <\/p>\n \u201cChinese authorities have taken resolute actions to address the risks from the property sector since the start of the pandemic,\u201d reads a February 9 IMF report<\/a>. \u201cThe key challenge now is to smooth the transition of the sector to a smaller, more sustainable size amid unresolved financial distress among developers, weakened homebuyer confidence, and a backdrop of large inventories and structurally declining demand.\u201d<\/p>\n Officials generally declined to comment on the property sector during the weeklong parliamentary meeting, an annual event where media is given a rare window into government proceedings. Aside from the remarks above, Ni largely refrained from commenting directly on the collapse of the property sector, spending most of his time commenting on urban safety and infrastructure initiatives like gas pipelines and elevator retrofits\u2014the panel he was speaking on was themed around \u201clivelihood.\u201d In his remarks, Ni focused on building affordable housing and government-sponsored urban renewal projects as potential solutions.<\/p>\n \u201cMany issues we face are dilemmas, but as hard as they might be, as long as the people need it, we will find a way to solve these issues for the benefit of the people,\u201d Ni said.<\/p>\n<\/div>\nSubscribe to the CFO Daily newsletter to keep up with the trends, issues, and executives shaping corporate finance. Sign up<\/a> for free.<\/div>\n<\/div>\n