Point of no return: crunch time as China tries to fend off property

China has reached a point of no return in its battle to contain what could be the biggest property crash the world has ever seen, experts are warning, putting the country’s Communist leadership and the global economy in peril.

As western countries stand on the edge of a potentially ruinous recession in the coming year, China is also facing a slump thanks to “total collapse” of confidence among ordinary people in the once-buoyant housing market, the continued ravages of Beijing’s draconian zero-Covid strategy and an extreme heatwave that is affecting the supply of power and food.

Alarm is spreading in China that tough times are on the horizon, with the chief executive of Huawei, Ren Zhengfei, causing a sensation this week when he warned that the chill from economic downturn would be “felt by everyone” for the next decade.

But just as it has become impossible for President Xi Jinping to U-turn on the mass lockdowns that have stunted economic activity, it also appears increasingly unlikely that he and his politburo will reverse the crackdown on reckless lending in the property market that has led to a 40% fall in the sale of homes this year.

The Chinese housing market has driven growth for the past two decades and now represents the biggest asset class in the world, with a notional value of between $55tn (£47tn) and $60tn, which is bigger than the total capitalisation of the US stock market. Now developers are going bust after being deprived of easy credit, prices are falling, homeowners are refusing to pay mortgages on unfinished homes and the slump in properties being sold and construction is crippling local governments that rely on land sales for income.

Gabriel Wildau, a China expert at the global advisory firm Teneo, says Beijing faces a crunch moment over whether to reverse the crackdown on lending or double down in its attempts to “tame the beast” of unproductive construction activity that has resulted in the emergence of ghost towns and airports, as well as roads to nowhere.

“The government faces a hard choice. But it’s like zero-Covid. They have come so far they can’t turn back because then it looks like a misjudgment or policy error,” Wildau said.

“This is where the rubber hits the road. They want more hi-tech growth and they don’t want as much real estate, but what replaces that? There’s been a total collapse of confidence in the housing market. No industry can survive that.”

Trying to reinvigorate the economy was the focus of a huge package of measures unveiled by Beijing in the past week, including 300bn yuan (£37bn) in new infrastructure spending and an extension of borrowing to local governments worth 500bn yuan. Economists said the…