Ningo-based Xingrun Properties is facing collapse, with more than 3.5 billion yuan ($570 million) in debts, leaving partially developed 'ghost towns' across the country.
Xingrun is the largest property developer to face bankruptcy in recent years, according to a spokesperson, Zhiwei Zhang. The collapse would add to a growing number of "ghost towns" around Chinaa, which have spread beyond Ordos and Wenzhou to at least eight other sites, including three half finished locations which developers abandoned and fled from.
While housing prices in cities such as Beijing and Shanghai have boomed back after a dip in 2012, house prices in 43 percent of tier 3 and 4 cities continue to fall. The Sydney Morning Herald (SMH) reports:
A new study by the International Monetary Fund said the ratio of residential investment to GDP reached 9.5per cent in 2012, higher than the peaks in Japan and Korea, and much higher than in the US during the subprime bubble. It also warned that China is running a budget deficit of 10per cent of GDP, once the land sales are stripped out, and has "considerably less" fiscal leeway than assumed.
And whilst idealists hope that urbanisation will fuel housing demand for decades, China's migration flow has in fact halved from 12.5m to 6.3m since 2010. Likewise, China's workforce has contracted, with numbers falling by 3.45m in 2012 and another 2.27m in 2013.
Authorities are trying to detach the economy from excess credit after a 99 trillion yuan ($16 trillion) spike in loans since 2009 – the equivalent of the gross US banking system. There are fears that the yuan is 20-25 percent over-valued and, after having fallen 2 percent against the dollar since January, "investors may soon start to ask whether China is quietly devaluing the yuan to cushion the shock of debt deflation".
As Premier Li Keqiang warned last week, "we are going to confront serious challenges this year".
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