Background and Analysis of the Chinese Real Estate Crisis Novak He
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n fall 2021, the world’s most indebted company——Chinese real estate company Evergrande missed its debt repayment deadline. This incident worsened the debt crisis of this debt giant, who had already accumulated a total liability of over $300 billion US dollars. The Evergrande debt crisis caused a stir in the global financial market and its impact on the Chinese economy is profound. It not only revealed the unhealthy expansion of the real estate sector in the past 20 years but also provided the government and the public a great
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chance to see through the fancy boom of the housing industry. Here I will analyze the history of the Chinese real estate “upsurge”, how the current crisis occurred, and the similarities and differences between the Chinese crisis and the 2007-08 U.S. housing market crash. I will also discuss the social impacts such expansion brings. The 2007-08 financial crisis in the U.S. originated also in the real estate sector where the “American Dream” featuring big houses was seen as a political goal, often used
in partisan propaganda to attract votes. Political pressure pushed Congress to allow for deregulation of home taxes, which resulted in reduced taxes and loan screening. Interest rate was also kept low to allow for more production, construction, and market activities (home purchases and credit expansion). Banks then chose to sell their mortgages for liquidity. Financial intermediaries deliberately designed financial instruments like mortgage-back securities (MBS) and collateralized debt obligations (CDO) and poured countless mon-