Xi Wields Carrots and Sticks to Quash China Mortgage Boycotts

  • There are now at least 319 mortgage boycotts across nation
  • Granting concessions could encourage copycats, analysts say

Chinese President Xi Jinping is turning to a tried-and-tested playbook to deal with an unusual type of protest, as tens of thousands of homebuyers refuse to pay their mortgages.

Over the past few days, authorities have moved quickly to quash a surge of public discontent, censoring crowd-sourced documents that tallied the escalating number of mortgage boycotts across China — a number that reached 319 on Friday. On the other hand, Xi’s administration has urged local governments and financial institutions to find ways to complete unfinished projects into which ordinary citizens have poured their life savings.

“The Chinese government, after so many years, is experienced in dealing with this kind of public protest,” said Tang Wenfang, a professor at the Chinese University of Hong Kong Shenzhen. “They typically have tactics they can use to reduce the risk of escalating public dissatisfaction.”

The Communist Party has plenty of experience dealing with social unrest, particularly during prolonged Covid lockdowns in which authorities restricted access to food and medical treatment. But both the tactics and scale of recent loan boycotts are more unusual in China, where protests are typically contained to a certain city or district.

Xi, who has placed “common prosperity” at the heart of a sweeping crackdown on the real estate sector, appears willing to make hefty concessions to ease the pain for ordinary people caught up in the crisis. Regulators are considering a proposal to allow homeowners to temporarily halt mortgage payments on stalled projects without incurring penalties, as part of a broader push to stabilize the market, Bloomberg News reported Monday.

While the central government has yet to announce any concrete relief, the spotlight has now shifted to the central Chinese provinces where boycotts are mainly concentrated. Zhengzhou, the capital city in Henan that faces some of the highest number of payment refusals, is setting up the nation’s first state-backed bailout fund to help developers complete housing projects.

Driving Discontent

Real-estate issues triggered about a fifth of protests in recent years

Still, granting reprieve to boycotters, particularly through mortgage holidays, is a risky strategy that could encourage copycat action.

“A full mortgage holiday is a band-aid, and may send a wrong message to the majority of home buyers who have dutifully serviced their mortgages,” said Chang Wei Liang, a macro strategist at DBS Bank. “It could even prompt similar protest suspensions of loan repayments among suppliers and contractors in real estate.”

Francis Chan, a Bloomberg Intelligence analyst, said any moratoriums would likely encourage more borrowers to stop home-loan payments.

“They may eventually choose to default as they already started not paying anyway,” he said.

So far, public ire has been directed at developers for failing to deliver apartments that had already been paid for, as well as banks for not safeguarding these loans. This sort of protest action is less threatening than directly challenging the central government, giving space to national leaders to find solutions by pressuring local officials or tweaking policy.

While real estate-related discontent isn’t unusual in China — making up about a fifth of protests in recent years, by one count — the timing now is more problematic given it follows months of frustration over costly Covid lockdowns.

Authorities are keeping a close eye on whether protesters gain traction in international media. They’re also worried about the mortgage boycotts becoming a “trigger event” that sparks a chain reaction and leads to broader discontent, according to Tang at the Chinese University of Hong Kong Shenzhen.

“It may spread to other sectors of the economy including people who are unemployed, whose shops are closed, who are dissatisfied with the Covid policy,” he said. “If that happens, that’s a much bigger problem for the central government to handle.”

Author: Rebecca Choong Wilkins, Bloomberg

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