China's real estate crisis could threaten growth into 2022. Beijing's undeterred
  China's growth is seriously slowing down as the country lurches from one economic threat to another. And while some of the biggest pain points appear to be easing, an unfolding crisis in real estate is emerging as one of Beijing's toughest challenges in the coming year.
The country's GDP grew at its slowest pace in a year last quarter, expanding just 4.9% from a year earlier. Compared to the prior quarter, the economy grew a mere 0.2% from July to September — one of the weakest quarters since China started releasing such records in 2011.
Disruptions due to the global shipping crisis and a massive energy crunch contributed to the slowdown.
Shipping delays and mounting inventories in China have hit smaller manufacturers that are now hurting for cash, resulting in lost orders and production cuts. And factory output has been dented in large part because of power shortages, a result of high demand for fossil fuel that has clashed with a national push to reduce carbon emissions.
But some of the most significant concerns for growth are now rippling through the real estate sector, which is suffering from the energy woes along with a government drive to curb excessive borrowing.
Real estate-related activities — including cement and steel production — registered steep contractions last month, as did property sales and new construction projects. That has led to reduced property investment, which contracted in September for the first time since March 2020.
On Wednesday, the National Bureau of Statistics announced that average housing prices in 70 major cities dropped slightly in October from the previous month. Goldman Sachs estimated the month-on-month drop at an annualized rate of 0.5%, the first decline since April 2015.
While the power crunch has undoubtedly weighed on the real estate sector, Beijing's crackdown is also taking its toll. Fearing the property market had become overheated, the government last year started requiring developers to cut their debt levels. It has also pledged to tame runaway home prices.
Since then, companies like embattled conglomerate Evergrande have been grappling with major debt problems, triggering worries about the risk of contagion for the sector and the broader economy.
Beijing seems unlikely to do much to ease its tight curbs on the real estate sector, according to economists at Société Générale — "possibly because they are attributing most of the blame to the power crunch, which has now eased but is not resolved."
"To our mind, housing is the key and there seems nothing substantial in the near term to mitigate the downtrend," wrote the firm's Wei Yao and Michelle Lam in a Monday report. They added there is a "very strong consensus among policymakers that housing is at the root of China's many structural problems."
A real estate downturn will almost certainly continue to weigh on economic growth.
Oxford Economics, for example, cut its forecast for fourth quarter growth to 3.6% from 5%. The firm recently trimmed its 2022 GDP forecast to 5.4% from 5.8%, mostly due to concerns about the real estate sector, power shortages and Covid-19.
"Stakes are high in managing the property slowdown," wrote Louis Kuijs, head of Asia economics at Oxford Economics, in a Wednesday report. He added the "relatively large economic footprint" of the real estate sector in China — it comprises about a quarter or so of GDP — means even a gradual or "managed" slowdown would "significantly" affect the economy.
A 'key' challenge long-term
The housing crackdown is China's "key long-term challenge," according to Aidan Yao, senior emerging Asia economist with AXA Investment Managers. He downgraded his forecast for GDP growth this year to 7.9% from 8.5%, partly because of Beijing's firm stance on controlling debt in the property market and elsewhere. Meanwhile, he also sees some downside risks to the 2022 forecast of 5.5%.
Chinese President Xi Jinping's desire to control the housing market is no secret. In 2017, he famously announced that "housing is for living and not for speculation."
But Beijing's campaign has gained additional momentum during the coronavirus pandemic, as the government became concerned that too much cheap money was flooding a sector that was already highly leveraged. That worry led authorities to force developers last year to trim their debt levels.
This year, Xi has also ramped up promises to close what he sees as a worsening wealth gap, saying "common prosperity" would be a top government priority. That pledge has been reflected in tightening rules on all sorts of industries, including tech and other types of private enterprise.
But it's also apparent in real estate, as Chinese state media outlets blame soaring housing prices for worsening income inequality.
As all of this unfolds, a liquidity crunch has worsened among the real estate sector's weakest corporations. Evergrande — which is China's most-indebted developer — has repeatedly missed interest payments and warned it could default.
The company's crisis has unsettled global investors in recent weeks, who worry a bankrupt Evergrande could lead to a domino effect. Other property firms, including Fantasia Holdings and Modern Land, have already indicated they are struggling to pay their debts.
Chinese authorities have tried to assuage fears about Evergrande. The People's Bank of China said Friday the company had mismanaged its business but risks to the financial system were "controllable."
Yao, from AXA Investment Managers, said Beijing isn't likely to change its course on regulation.
While there may be "further fine-tuning" of housing market policies, he sees "no reversal to the overall tightening stance."  Laura He is a reporter and digital producer for CNN Business. She covers news about Asian business and markets from Hong Kong.  Olympic flame arrives Cai Qi, president of the Beijing 2022 Organizing Committee, lights the cauldron with the Olympic flame during a welcoming ceremony in Beijing on Wednesday. The Olympic Torch was officially handed over to organizers of the Beijing Olympic on Tuesday in Athens, Greece, before the torch was flown to China. The Winter Games will begin in February next year.
 Chinese authorities have offered a bounty equivalent to more than $23,000 for the capture of a North Korean defector who broke out of prison in the northeastern city of Jilin on Monday.
The inmate, identified as Zhu Xianjian, entered China illegally in 2013. Three years later, he was sentenced to 11 years in prison for illegal border-crossing, larceny and robbery, to be followed by his deportation, according to a court judgment.
A bounty notice issued by the Jilin prison said Xu escaped at about 6 p.m. local time on Monday after climbing onto a shed next to a gate as inmates were finishing work in the yard.
The notice offers a $15,600 reward for information that helps police catch Xu. And that could rise to $23,400 for clues that lead directly to his arrest — almost five times the average annual income of Jilin urban residents and more than nine times that of those in rural areas.
Xu's dramatic escape was captured in a surveillance video posted on Chinese social media by a number of state media outlets.
In the footage, Xu is seen scaling the shed, running across the roof and using what appears to be a rope to damage the electric fence surrounding the prison wall, setting off a series of sparks. He then steps onto the fencing to climb over another metal fence and disappears behind the high walls, as prisoners and guards look on.
Police have blocked off entrances to nearby villages and conducted a house-to-house search for Xu, according to the state-run Global Times. Another surveillance video shows Xu roll over on the ground after jumping from the high fence. He lies still for a while before getting up and running away.
News of Xu's escape drew wide public attention in China, where prison breaks are rare. A related hashtag on Weibo, China's Twitter-like platform, drew more than 22 million views, according to the Global Times.
But censorship soon kicked in. The bounty notice was deleted from the Jilin prison police's social media account, and some related hashtags and posts were removed from Weibo — including footage of Xu's escape.
According to court documents, it was just past midnight on July 21, 2013, when Xu — a coal miner — swam across the river from the northeastern tip of North Korea to a Chinese village in the city of Tumen, Jilin province.
Within hours, he broke into several village houses to steal money, cell phones, sneakers and clothes. At the third house, an old woman discovered him and shouted for help, the court document said.
"I took out a knife tied to my waist and stabbed the granny in the back. Then I noticed she was carrying a satchel. I tried to yank it off her but she wouldn't let go, so I stabbed her a few times more," Xu was quoted as saying in court.
Xu was arrested hours later when trying to flee in a taxi, the court document said. The old woman suffered severe injuries but survived, it added.
While in prison, Xu's sentence was reduced twice — in 2017 and in 2020 — for a show of remorse, good discipline and actively participating in "ideological, cultural and vocational education" and laboring work, state broadcaster CCTV reported. He was due for release in August 2023.
According to Human Rights Watch, North Korean defectors who get sent back to the country can face severe punishment, including torture and sexual abuse.  Nectar Gan is China Reporter for CNN International based in Hong Kong. She covers the changes taking place in China, and their impact on the world. Around Asia
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