China’s real estate risks continued to erupt as protests against unfinished buildings occurred in many places, and suppliers have collectively cut off their materials to housing developers. The crisis is spreading to a lot of related industries.
Chinese Premier Li Keqiang had to summon a State Council meeting, expressing the need to stabilize the real estate market.
The state media “China Securities Journal” reported that Li Keqiang presided over an executive meeting on July 21, saying that the economy is in a critical state.
Li Keqiang said that consumption should still be the key driving force of the economy. So it is necessary to support financial institutions to adopt more consumer loans for those affected by the Covid epidemic.
He said that the cities should release specific policies to promote a stable and healthy development of the real estate market, and to meet the sustainable housing demand. They should also introduce measures to help create jobs and promote consumption.
The Premier’s instructions came as the crisis broken out in the real estate market is spreading its risks to other industries.
In the steel industry, an incomplete statistics shows that since the beginning of this year, 6 companies in China have gone bankrupt, and 28 others have suspended their production for maintenance.
The shutdown trend has spread to Shanxi, Yunnan, Anhui, Hebei, Henan and some other provinces.
Among them, Shandong Guangfu Group stopped production on July 19. It has an annual production capacity of 3.96 million tons.
China’s domestic crude steel production has also declined. According to the National Bureau of Statistics, crude steel production in 10 provinces and cities in the first half of 2022 fell by more than 10% year-on-year.
Steel bar production in the first half of the year was down 14.1% from the same period last year.
A World Bank study indicates that real estate development is an important midstream industry. It has effects on upstream industries, such as banking and finance, basic chemicals, steel, building materials, construction, construction machinery, non-ferrous metals. It also impacts downstream industries such as home appliances, decoration, home textiles.
In the financial sector, the Wall Street Journal reported that, by July 18, house buyers in more than 300 property projects in many parts of China have threatened to suspend their mortgage payments.
ANZ estimated that 1.5 trillion yuan ($222 billion) worth of mortgages could be affected by the mortgage boycott.
The protests against housing loan payments are creating risks of bad debts in the banking system, which in turn may cause systemic financial risks.