The force and determination of the tightening campaign market reflects its importance to at least three distinct political objectives. Yet even as the Politburo signaled a general shift from tightening to loosening at its 30 July meeting, policymakers singled out the housing sector as an exception. Property sales fell 18% year-on-year in August in value terms. For the January-to-August period, new mortgage lending was RMB 1.93tn (USD 295bn) less than in the same period last year. The property downturn that these measures created is severe. Restrictions on mortgage lending and developer loans have been a significant contributor to Evergrande’s distress and are also pressuring other developers. The more important question is whether Evergrande’s collapse will force policymakers to loosen tightening measures affecting the broader housing market. China’s recent history of restructurings, wind-downs, bailouts, and partial bailouts of large companies, including Anbang Insurance, HNA Group, Baoshang Bank, HFBank, and Huarong testify to Chinese regulators’ ability to contain systemic risk. Evergrande’s assets are mostly land and buildings, which are easier to value and more liquid than Lehman’s derivatives and mortgage-backed securities. Evergrande’s balance sheet is also less complex and less interconnected with the broader financial system than Lehman’s. Lehman’s liabilities when it went bankrupt were equal to 4.2% of the US’ 2007 GDP, while Evergrande’s liabilities at the end of June equaled almost 1.9% of China’s 2020 GDP, according to Bloomberg.
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