China’s Real Estate Struggles: Government-Owned Developers Face Challenges
The Chinese Communist Party’s (CCP) third plenum concluded this week without providing relief for the country’s struggling real estate sector. The sector is facing issues like dwindling contracted sales, which are crucial for developers to fund projects and pay debts.
In 2021, the top 19 developers achieved contracted sales of over 100 billion yuan (USD 13.8 billion). However, by mid-2024, only five developers remain in this club, all of which are government-owned or backed. Poly Developments and Holdings Group leads with 173 billion yuan in sales, followed by China Overseas Land & Investment (COLI) with 148 billion yuan. China Vanke, although not state-owned, is backed by the government through its top shareholder, Shenzhen Metro.
The phenomenon of ‘guojin mintui,’ meaning ‘the state advances as the private sector recedes,’ is evident in the real estate sector. State credibility and stability are helping some companies, but even government-backed entities are not immune to losses. Poly Development expects a 39% drop in net profit for the first half of the year, and China Vanke is anticipating its first-ever loss since its listing in 1990.
Jizhou Dong, head of Chinese property sector research at Nomura, stated, ‘There hasn’t been any meaningful turnaround in the property sector, as indicated by shrinking sales and falling prices. It doesn’t really matter whether it’s a state-owned enterprise or not.’
Doubts Revealed
Chinese Communist Party -: The Chinese Communist Party is the main political party in China that controls the government and makes important decisions for the country.
third plenum -: A plenum is a big meeting where important leaders discuss and make decisions. The third plenum is the third such meeting in a series.
real estate -: Real estate refers to property like houses, buildings, and land. In this context, it means the business of buying, selling, and developing these properties.
contracted sales -: Contracted sales are agreements where a buyer agrees to purchase a property, but the sale is not yet completed.
billion yuan -: Yuan is the currency used in China. A billion yuan is a very large amount of money, similar to billions of rupees in India.
government-backed -: Government-backed means supported or owned by the government. In this case, it refers to real estate companies that are supported by the Chinese government.
Poly Developments -: Poly Developments is a big real estate company in China that builds and sells properties.
China Vanke -: China Vanke is another large real estate company in China, known for developing residential and commercial properties.
profit drops -: Profit drops mean that the companies are making less money than before.
guojin mintui -: Guojin mintui is a Chinese term that means ‘the state advances, the private sector retreats.’ It describes a situation where government-owned companies become more dominant while private companies become less important.