Interesting article in the WSJ today about property developer Guangzhou R&F’s newfound conservative expansion strategy. Like many mainland developers, R&F made countless aggressive purchases as it sought to swell its land bank while the real estate market was at its peak. This expansion was largely funded by debt. When the market imploded last year, R&F struggled to keep up with its payments and, according to some reports at the time, teetered on the brink of bankruptcy. The company was bailed out by domestic banks and its eyes are now no longer bigger than its stomach – R&F recently opted not to develop a site it purchased in Foshan and returned the land to the local government. What a turnaround. I met with R&F executives in early 2008 when the market was still healthy. Sitting high up in their 54-floor R&F Center – the brightest and best office building in Guangzhou – the executives explained how they were participating in a plan to develop a new CBD in the city. R&F would put in the commercial infrastructure, the local government would build the transportation infrastructure – and businesses would flock to the area, with service providers (from accountants and law firms to restaurants and karaoke bars) and residential real estate following in their wake. Then came the downturn and R&F was forced to confront the reality of poor demand and plunging rental prices. Follow-up phone calls to the executives went unanswered. The fundamental factors driving Guangzhou’s long-term growth remain more or less the same and so there is no reason to believe that this new CBD won’t become everything that R&F hoped it would. But the trials of 2008 make for an interesting study of how R&F managed to dig itself into a hole – and why the local government, which has a clear interest in the company’s fortunes, probably pushed the banks to bail it out.