While the sector represents only about five per cent of China’s financial system, its links with property developers and developments – and the developers’ importance to local governments’ revenues – create a worrisome, self-fuelling and destructive loop for policymakers in Beijing.
The downturn in the property sector that is now continuing to spread like a cancer within China’s economy and financial system started when Xi Jinping introduced limits on developers’ leverage in late 2020. It came after decades of an increasingly speculative boom in property, aided by central and local governments that saw construction and infrastructure investment as vehicles for stimulating the economy with whenever growth was threatened.
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