China’s real estate market faces mounting financial risks that could have significant implications for the nation’s economic stability. In response, the Chinese mainland recently convened the Central Financial Work Conference to address these challenges and prevent major financial risks.
The real estate sector has long been a pillar of China’s economy, significantly influencing growth, employment, fiscal revenue, household wealth, and financial stability. In 2022, the combined added value of the construction and real estate industries accounted for 13% of the country’s GDP, according to the National Bureau of Statistics.
The industry’s extensive influence extends to upstream sectors like steel, building materials, construction machinery, and chemicals, as well as downstream industries such as home appliances, furniture, and automobiles. Therefore, fluctuations in the real estate market can have widespread effects across the entire economy.
In recent years, real estate companies have largely relied on strategies characterized by high leverage, high debt, and rapid turnover. The impact of the COVID-19 pandemic has exacerbated financial pressures on these companies, disrupting sales and cash flow, and challenging their traditional financing methods.
Furthermore, regulatory policies aimed at stabilizing the real estate market have affected both the financing and demand sides, increasing liquidity risks for developers with substantial debt and limited cash reserves. If not managed carefully, these risks could extend to the banking sector, potentially leading to regional or systemic financial challenges.
Prominent real estate companies such as Evergrande, Country Garden, and Sunac have faced significant financial difficulties, highlighting the urgency of addressing these issues. The decline in the real estate market also poses risks to local government revenues, possibly triggering local government debt risks.
By convening the Central Financial Work Conference, the Chinese mainland’s authorities aim to implement measures that mitigate real estate risks, safeguard financial stability, and ensure sustained economic growth.
Reference(s):
Central Financial Work Conference aims to prevent major risks
cgtn.com
