End of the road

Struggling property developer China Vanke, one of the giants of the sector, has named a new board of directors, with all members coming from the state sector, in yet another clear sign that the only way out of the country’s property slump has been the nationalization of its core. The previous board structure had a balance of independent and non-independent directors, but with the company posting a loss of RMB 88.6 billion, the system has clearly decided that the time has come.

China’s top property developers are now essentially nationalized—around 70 out of the top 100 are at least majority state-owned—and the remaining private players tend to be smaller companies with an impact limited to the local level. The property collapse began with Evergrande, then the largest developer in the country, which in 2022 disclosed debts of over RMB two trillion and eventually defaulted, going into liquidity. This spurred a restructuring of the entire property market, resulting in the current shift towards nationalization.

It is hard to imagine such a bailout would happen in other major markets, but fortunately for Vanke, the system is able to cushion the dramatic decline, avoiding a complete collapse. And Vanke’s board overhaul appears to accept the reality that the core of China’s property market is going to be state-owned for at least the foreseeable future. There are some areas in which China’s economy is doing well—EVs, batteries and other tech, yet the property market is still the backbone of the domestic economy and represents the lion’s share of personal wealth. Given the state of the real economy, it is hard to make a case for a broad-based recovery of the property market, and on top of that is China’s demographic slump with birth’s falling sharply year by year.