President Xi Jinping may not be able to restore confidence in the troubled industry, which has been hit by a series of defaults by developers and falling prices for land and apartments.China's real estate boom was based on an "unsustainable" model that benefited local governments and encouraged people to invest the bulk of their savings in property. Government policies designed to curb the boom made it difficult for indebted real estate behemoth Evergrande to pay its debts of more than $300 billion. "It remains to be seen how the authorities will handle the crisis," Soros said, during a panel discussion about developments in China and how the United States should respond. "They may have postponed dealing with it for too long, because people's confidence has now been shaken". Falling prices will "turn many of those who invested the bulk of their savings in real estate against Xi Jinping,". Evergrande's collapse could trigger wider risks for China's property market, hurting homeowners and the broader financial system. Real estate and related industries account for as much as 30% of the country's GDP.
Soros has in recent years emerged as a prominent critic of Xi and China's ruling Communist Party.
In October China’s 20th Party Congress will decide whether to give President Xi Jinping a third term as General Secretary. Climate change will remain a paramount policy challenge for the world, but the dominant geopolitical feature of today’s world is the escalating conflict between systems of governance that are diametrically opposed to each other.
One might think that Xi, who collects personal data for the surveillance of his citizens more aggressively than any other ruler in history, is bound to be successful. He certainly thinks so, and many people believe him. I do not. Explaining why will require a thumbnail history of the Communist Party of China.
The first person to dominate the CPC, Mao Zedong, unleashed the Great Leap Forward, which caused the death of tens of millions of people. This was followed by the Cultural Revolution, which destroyed Chinese traditions and institutions by torturing and killing the cultural and economic elite.
After Mao’s death brought an end to this turmoil, a new leader emerged. Deng Xiaoping recognized that China was lagging woefully behind the capitalist world. Embracing the credo, “Hide your strength and bide your time,” Deng invited foreigners to invest in China, and this led to four decades of miraculous growth that continued even after Xi came to power in 2013.
Since then, Xi has done his best to dismantle Deng’s achievements. He brought the private companies established under Deng under the control of the CPC and undermined the dynamism that used to characterize them. Rather than letting private enterprise blossom, Xi introduced his own “China Dream,” which can be summed up in two words: total control. That has had disastrous consequences. In contrast to Deng, Xi is a true believer in Communism.
But Xi has many enemies. Although no one can oppose him publicly because he controls all the levers of power, a fight within the CPC is brewing, and it is so sharp that it has found expression in various party publications. Xi is under attack from those who are inspired by Deng and want to see a greater role for private enterprise.
The gap is apparent in the economic crisis China is facing. Since Xi came to power, the real-estate market has been the main engine of economic growth. But the model on which the real-estate boom is based is unsustainable, because it is built entirely on credit. Local governments derive most of their revenues from selling land at ever-rising prices, and people buying apartments must start paying for them even before they are built.
Eventually, prices had to rise beyond the level that ordinary people could afford. That happened in the middle of 2021. By then, the boom had grown to an unhealthy size, accounting for nearly 30% of the economy and eating up an ever-increasing amount of credit.
After accelerating gradually, the property boom ended with a bang. With residential land prices in June 2021 more than 30% higher than they had been the year before, the authorities tried to slow the pace of appreciation and ordered banks not to increase lending for residential real estate.
The directive had the opposite effect from what was intended. Credit rationing made it difficult for the largest and most leveraged developer, Evergrande, to meet its obligations. Subcontractors who didn’t get paid stopped working, and people who had bought apartments started to worry that they might never receive the homes they were paying for. Evergrande has been placed in receivership, and other developers face a similar fate.
THE REVENGE OF THE VIRUS
China is encountering serious problems with COVID-19 as well. The Chinese vaccines were designed to deal with the original Wuhan variant of the coronavirus, but the world has been struggling with others, especially Delta and now Omicron.
All Xi can do now is to impose a “zero-COVID” policy, which entails severe lockdowns at the slightest sign of an outbreak. But this is having a negative effect on economic activity and is inflicting severe hardship on the people who are instantaneously quarantined wherever they are. The authorities will not be able to silence their complaints for long.
It is to be hoped that Xi may be replaced by someone less repressive at home and more peaceful abroad.