CHINA’S REAL ESTATE INDUSTRY:IS IT POSSIBLE TO REALIZE SOFT LANDING? —— A REVIEW AND EMPIRICAL ANALYSIS ON THE CREDIT RISK OF THE INDUSTRY

Abstract

China’s real estate industry played an outsized role in both China and global economy and has experienced a rapid growth during the past 15 years, but it went through a tough period of roller-coaster since the last half of 2021.More and more concerns about the credit stability of the industry arise with the default rate going up dramatically and both of onshore and offshore public financing windows have almost closed. This paper aims to systematically review and analyze the historical growth and credit evolvement of Chinese real estate industry based on in-depth research on the relative literature and industry practice, and to explore the key factors that drive the significant changes of the industry. It is found that the historical high growth rate and low default rate of Chinese developers relied highly on government policies, credit easing and supply-demand structure of Chinese housing market. As the macroeconomic environment has changed tremendously since the year 2021, credit of Chinese developers deteriorated dramatically and the industry is entering into a cycle of deleveraging. The paper systematically analyzed the evolvement of the three key factors including public policy, supply-demand balance and financial stability of the key players, and draw a conclusion that it is really challenging for Chinese developers to achieve soft landing during this round of downturn because it is the result of the superposition and comprehensive fermentation of short-term, medium-term and long-term factors.