Xi Jinping's Minister Says Developers That Are 'Seriously Insolvent...Must Go Bankrupt' Amid Real Estate Crisis In China

China’s housing minister, Ni Hong, has made it clear that the country’s struggling real estate developers will not receive a significant bailout. The warning comes amid a backdrop of increasing defaults and a declining property market.

What Happened: Ni, the Minister of Housing and Urban-Rural Development, said, "For real estate companies that are seriously insolvent and have lost the ability to operate, those that must go bankrupt should go bankrupt, or be restructured, in accordance with the law and market principles." He also warned that those who harm the public’s interests will face legal consequences, reported CNBC.

These remarks were made during a press conference held alongside China’s annual parliamentary meetings. The statement follows a series of defaults by major real estate developers such as Evergrande and Country Garden, raising doubts about their future business prospects.

Beijing had previously taken measures to curb property market speculation by reducing developers’ reliance on debt for growth. However, this move led to many developers running out of funds to complete construction projects, which are typically sold to homebuyers in China before completion. Some buyers stopped paying their mortgages in protest.

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Despite announcing measures to provide some developers with financing, the national stance on reducing the role of real estate in the economy remains unchanged. This year’s annual government gathering has highlighted the country’s focus on investing in and building up high-end manufacturing capabilities, with minimal emphasis on the real estate sector.

Why It Matters: The Chinese real estate market has been experiencing a significant downturn, with far-reaching consequences for the country’s banking sector. The crisis has been described as a “U.S. financial crisis on steroids” by some analysts, who warn that it could outpace the 2008 economic meltdown.

Chinese President Xi Jinping is currently grappling with a $7 trillion downturn as the country’s debt levels soar, its real estate market collapses, and its markets pull back over 21% from their 2021 highs. The downturn has been attributed to various factors, including regulatory crackdowns, geopolitical tensions, real estate defaults, and internal economic pressures.

Despite these challenges, there have been signs of a potential resurgence in the Chinese real estate market, with a slower price decline indicating revival efforts.

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