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“Property developers have run out of money.” said Jennifer Pak, China Marketplace Correspondent.

LIU JIN / AFP via Getty Images

China’s housing sector has debt problems. Big property developers such as the beleaguered Evergrande company have racked up huge debts, causing construction to halt and many angry homebuyers.

Amid the turmoil, buyers in China have banded together and threatened to stop paying mortgages on more than three hundred unfinished housing projects. The Chinese government may issue a bailout fund worth up to $148 billion aimed at allowing developers to finish their buildings. “Marketplace Morning Report” host David Brancaccio joins Jennifer Pak, Marketplace China correspondent, to discuss the latest developments in the crisis.

Here is an edited transcript of their conversation:

David Brancaccio: So what is this about unfinished housing? What is it like sitting there? If you see one of these, the foundation and maybe a pile of cinder blocks and a crane just sitting there?

Jennifer Sir: Yes, exactly. And part of the reason they stopped is because of the COVID lockdowns. But mainly because property developers have run out of money. You may have heard of Evergrande. So they’ll go into smaller areas, pay top dollar for land, and sell condo projects before they’re even built. And usually, they will collect a large down payment, usually 30%. But sometimes we hear 50%, and then they use that money to build condominiums. And almost all developers do this. At the same time. They also have cheap loans. So they start investing in areas where they have no expertise. Evergrande, for example, started to get into bottled water, electric cars, and even bought a football team.

Brancaccio: And these cheap loans, they dried up.

Sir: Yes, yes. Chinese regulators are very worried about this reckless spending. So they cut off access to easy credit. Then China’s economy also started to slow down. So investors are starting to really look at these condos, are they really worth the price they’re paying? So real estate sales are also down. So the developer runs out of cash. And that’s when global investors are very worried.

Brancaccio: Why, I mean, other than human concern for other human beings? I mean, it’s my understanding that US investors are generally not too deep into China’s property market.

Sir: You are right. But real estate is a big part of China’s economy, and China’s economy is plugged into the whole world. So if Evergrande and other developers, they don’t pay suppliers or construction workers, then these people in turn, don’t pay their bills, layoffs have happened. This is a real snowball effect. And finally, you will feel that in the US, Chinese officials really do not want more homebuyers to join this boycott, so they are censoring the news. It is very difficult to assess how many people are involved.

Brancaccio: And there’s a difference here. These protesting homeowners are not defaulting on their loans, but they are threatening to boycott their mortgage payments. What is the difference?

Sir: Yes, well, in China, if you don’t pay your debts, it can put you on the so-called deadbeat list, which will make your life miserable. And secondly, homebuyers, they still want these condos. Just like if you’re a man, you need a condo to be considered marriage material. You need a condo to get your child to a good school. And if you are in the middle class, which is many, property is still the only form of investment available to you. So threatening not to pay the mortgage is really a way to get the government’s attention instead of actually defaulting.

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