Chinese property sector crisis (2020–present)
Based on Wikipedia: Chinese property sector crisis (2020–present)
The House of Cards
In December 2021, a company that owed more money than the entire annual economic output of New Zealand simply stopped paying its bills. Evergrande Group, once China's second-largest property developer, had crossed a point of no return. The ratings agency Fitch stamped its file with two letters: RD. Restricted default.
It was the beginning of a crisis that would shake global markets, wipe out billions in investments, and reveal just how much of China's economic miracle had been built on borrowed time—and borrowed money.
Understanding the Scale
To grasp what happened, you first need to understand a number: 310 billion dollars. That's roughly how much Evergrande owed to banks, suppliers, retail investors, and foreign bondholders at the start of the 2020s. To put that in perspective, it's more than the gross domestic product of Finland. It's enough to buy every professional sports team in America—twice.
And Evergrande wasn't alone.
The crisis that began with Evergrande spread like wildfire through China's property sector. Country Garden. Kaisa Group. Fantasia Holdings. Sunac. Sinic Holdings. Modern Land. One by one, these giants of Chinese real estate found themselves gasping for air, missing bond payments, and watching their share prices crater.
How China Built a Real Estate Empire
The roots of this crisis stretch back decades, to a peculiar feature of Chinese governance that most outsiders don't know about. In China, local governments can't simply raise taxes the way cities and states do in Western countries. Instead, they rely heavily on something called land use rights—essentially, leasing land to developers.
This system created a powerful incentive. The more local governments could push up land values, the more money they could raise. And the more money they raised, the more infrastructure they could build. Roads. Bridges. Subway systems. Entire new cities sprouted from farmland.
By 2009, average land values in China had tripled compared to just four years earlier. They kept climbing through 2011, paused briefly, then resumed their upward march.
The 2008 global financial crisis actually accelerated this dynamic. While Western governments bailed out banks, China's response was different: massive investment in infrastructure, funded largely through local government borrowing. It worked beautifully as stimulus. But it also deepened the country's dependence on ever-rising land values.
What happens when your entire financial system depends on property prices going up forever?
Eventually, you find out.
The Rise of Evergrande
Between its initial public offering in 2009 and 2017, Evergrande's stock price multiplied eightfold. To understand how extraordinary that is: the Hang Seng Index—Hong Kong's equivalent of the Dow Jones—grew about 30 percent over that same period. Evergrande grew more than twenty-five times faster than the market.
The company became the world's most indebted property developer. But in China's booming real estate market, that seemed like a feature, not a bug. More debt meant more projects. More projects meant more sales. More sales meant more money to service the debt and borrow even more.
By 2020, Evergrande's land reserves alone were large enough to house ten million people. That's a population the size of Portugal, just sitting in the company's portfolio, waiting to be developed.
Many analysts considered Evergrande "too big to fail." The phrase echoed the language used about Lehman Brothers before its 2008 collapse—a comparison that would prove uncomfortably apt.
The Empire Expands
Flush with borrowed money and confidence, Evergrande expanded far beyond building apartments. The company bought Guangzhou Football Club, making it China's richest soccer team. It poured over 45 billion yuan—about seven billion dollars—into developing electric vehicles. It built theme parks.
Most audaciously, Evergrande embarked on Ocean Flower Island: a 100 billion yuan project to construct an artificial island off the coast of Hainan province in the South China Sea. Fifteen billion dollars to build land where none existed.
To fund all this, the company turned to wealth management products—a financial instrument that would later become central to the scandal. These products promised retail investors returns of over 10 percent annually. Evergrande managers pressured their subordinates to buy them. Salespeople, desperate to meet targets, marketed them to anyone who would listen.
The problem? The money wasn't being invested in productive assets. It was being used to plug holes in Evergrande's finances and pay off earlier investors. One anonymous Evergrande executive later admitted the products "were not for everyone" and "should not have been offered" to retail investors. The executive warned that "many people might be arrested for financial fraud if investors don't get paid off."
This is called a Ponzi scheme.
Three Red Lines
In 2020, Chinese leader Xi Jinping decided enough was enough. He had been warning for years that "houses are for living, not for speculation"—a slogan that became the basis for new regulations called the "three red lines."
The three red lines were simple ratios that limited how much debt property developers could take on. Think of them as three guardrails: one measured debt against cash on hand, another measured debt against equity (the company's actual value minus what it owes), and the third measured debt against total assets.
Cross one line, and your borrowing gets restricted. Cross two, and restrictions tighten further. Cross all three?
Evergrande crossed all three.
A director at S&P Global Ratings told the Financial Times that Evergrande was "so highly leveraged, it's likely to breach all of the alleged thresholds." The company's entire business model—borrow heavily, build aggressively, rely on rising prices to make it all work—suddenly became illegal.
The Dominoes Begin to Fall
In the last week of August 2021, a letter leaked online. In it, Evergrande warned the government of Guangdong province that the company was running out of cash. Evergrande immediately denounced the letter as "pure defamation" and claimed it was fabricated.
Days later, on August 31st, the company admitted in a formal statement that it would default on its debts if it couldn't raise enough cash. The letter had been real.
Shares plunged. Not just Evergrande's—the shock rippled through global markets. Foreign investors suddenly looked at their Chinese holdings with new eyes.
Through September and October, the situation deteriorated rapidly. Ratings agencies issued downgrade after downgrade: Fitch dropped Evergrande from B+ to B, then to CCC+, then to CC. Moody's slashed its rating from B2 to Caa1. S&P cut it to CCC—a level that means "extremely speculative."
On September 24th, Evergrande missed bond payments totaling 83.5 million dollars. It had 30 days to pay before officially defaulting. Analysts were skeptical it could manage even that.
The Scramble for Survival
Evergrande tried to sell everything it could. On September 29th, it unloaded a 20 percent stake in Shengjing Bank, raising about 1.5 billion dollars. A week later, reports emerged that rival Hopson Development was negotiating to buy 51 percent of Evergrande's property services subsidiary for around five billion dollars.
The deal fell through.
By October 20th, Evergrande announced that except for the bank shares, "there has been no material progress on sale of assets of the group." Shares fell another 13.6 percent on the news.
Meanwhile, the contagion was spreading. On October 5th, developer Fantasia Holdings missed payment on a 206 million dollar bond—just weeks after assuring investors it had "no liquidity issue." On October 11th, Sinic Holdings warned it probably couldn't pay off a 250 million dollar bond due the following week. Modern Land tried to extend its bond maturities. Bond prices for Sunac and Guangzhou R&F fell sharply.
By October 8th, fourteen of China's thirty biggest developers had violated at least one of the three red lines. Guangzhou R&F had violated all three. The companies that had crossed the lines represented over 670 billion dollars in 2020 sales.
The Global Exposure
This wasn't just a Chinese problem. American and European financial institutions had significant money at stake.
Ashmore Group, a British investment firm specializing in emerging markets, owned more than 400 million dollars in Evergrande bonds. UBS held over 300 million. BlackRock's total exposure across all its funds reached 400 million dollars. Even HSBC, one of the world's largest banks, had exposure of 31 million at its peak.
These numbers might sound manageable for institutions of that size. But they represented just the direct holdings. The indirect effects—on confidence, on other Chinese investments, on the broader property sector—were harder to calculate and potentially far larger.
The Government Responds
For weeks, Beijing stayed silent. Then, on October 15th, the Chinese government finally commented—and blamed Evergrande for its own problems. Officials said that financial contagion was "controllable."
Behind the scenes, the government was more active. In September, local governments in Zhuhai and Shenzhen took control of sales revenue from Evergrande projects, putting the money into state-controlled accounts to protect homebuyers and keep construction going. Other provinces followed.
In October, the Wall Street Journal reported that Beijing was considering a nationwide property tax to tackle real estate speculation. But the proposal met fierce resistance within the Chinese Communist Party. An alternative idea emerged: have the state directly provide housing. By late October, a five-year trial of the property tax was announced for select high-priced regions like Shenzhen, Hangzhou, and Hainan.
By November, reports indicated the government was working behind closed doors to restructure Evergrande—not to save the company, but to manage its collapse.
Default
The end came in early December 2021. Evergrande missed a deadline for payment of interest on dollar-denominated bonds at the end of a 30-day grace period. There was no sign of payment.
A day later, trading in shares of Kaisa Group—the second-largest holder of offshore debt among Chinese developers—was suspended. Anonymous sources said Kaisa would probably miss a deadline for 400 million dollars in offshore debt.
On December 9th, Fitch downgraded both Evergrande and Kaisa to "RD"—restricted default. Neither company had officially announced defaults, but the rating agency had seen enough. The companies had stopped paying their foreign creditors.
The next day, in a sign of just how bad things had gotten, a third party forcibly sold about 3.4 percent of Evergrande chairman Hui Ka Yan's personal stock holdings. The shares had been pledged as collateral, and someone was collecting.
On December 17th, S&P Global declared Evergrande in "selective default"—meaning the company was still paying some creditors but not others.
The Liquidation
The final chapter came more than two years later. On January 29th, 2024, a Hong Kong court ordered Evergrande to be liquidated.
It was a remarkable end for a company that had once seemed invincible. At its peak, Evergrande was building enough housing for millions of people, owned China's richest football club, and was developing electric cars and artificial islands. Its founder, Hui Ka Yan, had been one of Asia's wealthiest people.
Now, lawyers would spend years sorting through the wreckage, trying to figure out who would get paid what fraction of what they were owed.
The Deeper Problem
The Evergrande crisis was never really about one company. It was about a system.
For decades, China's economic growth model depended heavily on real estate. Local governments needed rising land values to fund their budgets. Developers needed to keep building to service their debts. Banks needed to keep lending to maintain their portfolios. Homebuyers needed prices to keep rising to feel wealthy.
Everyone needed the same thing: for property values to go up forever.
Xi Jinping's three red lines were an attempt to deflate this bubble slowly, to let air out of the system without causing an explosion. But Evergrande and companies like it had built business models that couldn't survive without constant expansion. When the borrowing stopped, they stopped.
The official data tells the story. In the third quarter of 2021, real estate output in China fell 1.6 percent year-over-year—the first decline since the pandemic began. Home prices fell month-over-month for the first time since April 2015, dropping in more than half the cities surveyed.
China's shadow banking sector—the network of trust companies and other lenders that operate outside normal banking regulations—was hit hard. Firms like Sichuan Trust, which had lent heavily to property developers, found themselves caught in the crackdown.
What Comes Next
The Chinese property crisis isn't over. It's still unfolding. The question is no longer whether the bubble will deflate—it already has. The question is how much damage the deflation will cause, and how long it will take for China to find a new model for economic growth.
For decades, when Chinese families saved money, they put it into property. When local governments needed revenue, they sold land. When the economy needed stimulus, officials built infrastructure. Real estate was the foundation of everything.
Now that foundation is cracking. And no one—not Beijing, not the developers, not the investors—knows exactly what will replace it.
The house of cards that seemed too big to fail has fallen. What gets built in its place will shape China's economy—and the world's—for decades to come.