How the real estate crisis can be one of the biggest economic crises in the history of China

Right now, there are hundreds of unfinished apartment towers across China. Social media footage shows crowds protesting in front of the offices of Chinese real estate developers Evergrande. The big risk comes from the property sector, where developers are crumbling under mountains of debt. Analysts fear the crisis will spread throughout China's property sector and the entire economy. The communist party is paranoid and obsessed with internal security, so the question is will the communist party collapse?

China is experiencing one of the most difficult economic crises in its history, with the real estate market, which accounts for nearly 30 percent of its GDP, collapsing in the last year. Thousands of people are now protesting in 86 cities, and there is a banking crisis in which banks have begun freezing depositors' accounts. So, back then, just 29 percent of the population lived in cities, but after 1995, the population in cities exploded to about 50 percent of the total population, and today, cities house 63.89 percent of China's population of nearly 900 million people. Now, unlike in India, you cannot own land in China, so the entire land of China is owned by the state and can only be given on a lease to builders and developers, so when so many people started migrating to cities, demand for houses skyrocketed, and when demand for a product skyrockets, the price of the product rises, and more and more players enter the market to meet the rising demand. To accommodate this demand, hundreds of developers flocked to the Chinese market, and this is where we witnessed the huge development of Chinese real estate developers.

As we all know, the construction industry is incredibly capital-intensive, therefore these businesses. First, they acquired large bank loans to pay the large lease amount to the state, then they took even larger loans to build these structures and begin selling them to the Chinese people. Construction was an excellent business to lend to because there was already an oversupply in the market, the business had a healthy profit margin of 15 to 20 percent despite being a high-ticket business, and most importantly from the state's perspective, it generates a lot of employment profits a huge supply chain of steel glass cement brick and hundreds of other suppliers, and eventually makes a huge contribution to China's GDP by giving jobs to many many workers. This is why real estate contributed nearly 30% of the Chinese GDP; this is why banks kept lending, developers kept building, and Chinese people kept buying houses; and as demand increased, the price of houses increased, resulting in more lending, more developers, and more sales; and this is why the Chinese property boom began. As a result, real estate prices in China began to skyrocket, making Chinese cities some of the most expensive in the world.

Number one, just like in India, you will be respected as a well-established person only if you own a house, so if you're a man who doesn't own a house in China, the family will be too hesitant to marry their daughter to you. Number two, just like gold is our go-to investment in India, for the Chinese people property was the best investment instrument in the market, and just like our elders refrain from stock investing, so do the Chinese people. It appears to be a terrific financial tool, and the cherry on top is that there is no property tax on purchasing private residential properties in China.

During the GDP property boom, Chinese developers built so many buildings that today there are buildings for 90 million people that are completely vacant, which is more than the entire population of France, Germany, Italy, the United Kingdom, and even Canada, and this resulted in the creation of what we now call the ghost cities of China. Many Chinese cities that are constantly conducting real estate development in pursuit of GDP growth simply turn urbanization into building houses and cities, but their floor areas and population growth are out of sync, resulting in the ghost city phenomenon, and the majority of these apartments are already owned by people who hope that real estate prices will rise and their investments will appreciate. This is why the Chinese government knew they were in a mega bubble in which developers were borrowing unsafe amounts of money to keep fuelling the Chinese real estate boom. Now, let's see how the Chinese government handles this situation. Also, India has some issues with some smartphone brands, I'll discuss this in another article.