A Ponzi scheme by any other name: the bursting of China’s property bubble |

A little more than a year ago, a Chinese property developer largely unknown to the outside world said its cashflow was under “tremendous pressure” and it might not be able to pay back some of its eye-watering debts of $300bn (£275bn).

Today, that company, China Evergrande Group, is all too well known as the poster child of the country’s economic woes. House prices in China have fallen in each of the 12 months since Evergrande’s now prophetic warning, with Xi Jinping’s government now preparing to throw billions of dollars at a property market that experts say increasingly resembles a giant Ponzi scheme.

Prices for new homes in 70 Chinese cities fell by a worse-than-expected 1.3% year on year in August, according to official figures, reflecting a turbulent 12 months in which China’s housing sector has gone from an unstoppable driver of growth and prosperity to being the chief threat to the world’s powerhouse economy.

Nearly a third of all property loans are now classed as bad debts – 29.1%, up from 24.3% at the end of last year, according to research by Citigroup this week – with once safe state-owned property developers driving the increase.

The crisis at Evergrande, then China’s second biggest property developer, has spread through the industry to the point where the government’s pledge this week of 200bn yuan (£26bn) to kickstart investment was judged by analysts to be well short of what was needed.

The rating agency S&P said at least 800bn yuan would be needed – or even 10 times that much in the worst-case scenario – to rescue a property market in which priceshave fallen, sales have slid, developers have gone bust and buyers have staged an unprecedented and widening mortgage boycott in protest at having paid largely upfront for homes that have not been finished.

The market is experiencing a total collapse in confidence, analysts say, and only government intervention can save the day.

About 2m off-plan homes remain unfinished across China, according to a rough estimate by S&P. That figure will grow if sales continue to fall and developers continue to run out of money to complete projects.

“China’s property downturn has turned into a crisis of confidence that only the government can fix,” S&P said. “If falling sales tip more developers into distressed territory, things will get worse. The distressed firms will halt construction on more pre-sold homes, hitting buyers’ confidence further. Our rough estimate is that about 2m unfinished homes presold by Chinese developers are now in limbo. This has shattered confidence in this market.”

For years, preselling homes – mainly apartments in large blocks and newly styled urban villages – kept the developers flush with cash and, along with borrowing on an epic scale, meant they could buy more land and keep building. In 2021, about 90% of homes were sold off plan in China.

But Xi’s decision two years ago to crack down on “reckless” lending starved developers of their funding and, when the music…