A fast-growing mortgage boycott across dozens of cities in China has prompted some property suppliers to cease their bank loan repayments, raising fears the escalating situation could trigger a further downward spiral in the sector and even threaten the country's financial stability.
Hundreds of landscapers, sculpture-makers and construction companies have expressed their anger that they have been bled dry because some debt-saddled developers did not pay their bills while they continued to service or help build apartments, Chinese media Caixin reported.
The ABC has seen one joint statement, circulating on social media, signed by a group of contractors and suppliers of Evergrande in Hubei Province saying they are "broke", have "lost hope" and will stop paying all loans and arrears.
"We have been struggling for more than a year, we have sold our assets and cars, and have exhausted our credit cards to pay the bills," said the letter, which was addressed to the provincial banks and authorities in Hubei.
"Now the whole industry is panicking.
"Evergrande should be held responsible for any consequence that follows because of the chain reaction of the supply-chain crisis."
The ABC has approached Evergrande for comment. China's biggest developer is reeling under more than $400 billion in liabilities.
Other top developers, including Fantasia, Kaisa and Sunac, also defaulted on bond payments earlier this year.
'The ripple effect is vast'
Concerns about developers' inability to finish housing projects have ignited a nationwide strike, with a wave of disgruntled homebuyers across the country refusing to pay their mortgages unless their homes are built.
The movement started in late June when about 900 Jiangxi residents made the desperate move as the construction of their pre-sold Evergrande apartments had been stalled for more than a year.
Within only a few weeks, the boycott has quickly spread to at least 300 unfinished projects in more than 90 cities, Bloomberg reported.
"The ripple-through effect of that is really vast, when you consider the sort of wider network, not just of homebuyers, but also suppliers and contractors who rely on this sort of ecosystem," Rebecca Choong Wilkins, Asia politics and government correspondent for Bloomberg, told RN.
Since the mortgage strike broke out, China's banking regulator, China Banking and Insurance Regulatory Commission (CBIRC), had repeatedly assured homebuyers that unfinished housing projects would be delivered and encouraged banks to take "social responsibilities" to assist worthy housing projects with funding.
It is reported that China may grant the affected homebuyers a mortgage holiday that would allow them to temporarily pause their repayments without incurring penalties.
"The latest development in the mortgage-repayment boycott is quite significant," Betty Wang, senior China economist from ANZ Research, told the ABC.
"It signals the downside risks in the property sector have shifted from supply-side factors to demand-side factors.
"Mortgages are regarded as the safest asset for Chinese banks as they do offer quite a good return."
Ms Wang said the quality of mortgages was important in keeping local banks' assets healthy, as mortgages account for nearly 20 per cent of outstanding loans in the entire banking system.
"If we do have this issue developing much faster if not exploded, it will threaten the financial stability for sure," she added.
Property sector slump weighs on China's economy
There are some risks already lurking in China's financial system and the economy.
ANZ estimates that up to 1.5 trillion yuan ($220 billion) of mortgage loans are related to incomplete housing projects, which is around 4 per cent of total outstanding mortgages.
But some of the most exposed banks, including the big four — Bank of China, Agricultural Bank of China, China Construction Bank and Industrial and Commercial Bank of China — said earlier this month that the risk was manageable and their mortgage books tied to those projects were relatively small.
According to Ms Wang, the market share of home sales held by developers that have defaulted over the past 12 months is around 10 to 15 per cent.
"If the policymakers fail to address this issue quickly, it could develop further and evolve into a much bigger risk," she said.
Rising COVID cases and periodic lockdowns in China has hit home sales and household incomes, with property prices falling in the past 10 consecutive months.
The slump in the property sector, which accounts for about 30 per cent of China's gross domestic product by some metrics, is bleeding into the real economy.
China's GDP growth in the second quarter slowed to a trickle, at just 0.4 per cent. Many economists have lowered their annual forecasts to 3 per cent, which is well below the government's target of about 5.5 per cent.
Despite the slowdown, Premier Li Keqiang said last week that the government would not provide any large-scale stimulus packages to boost the economy.
Meanwhile, China's jobless rate among people aged between 16 to 24 rose to record highs, hitting 19.3 per cent in June, which could add extra pressure on the government.
Some critics say Beijing's "three red lines" scheme — which was introduced about two years ago in order to reduce debt within the industry, curb runaway property prices and lift construction standards — has gone too far.
"Initially it would be potentially a positive thing, it would help prevent the risk of a market bubble," Ms Wilkins said.
"But part of the issue with developers was they did have this extraordinary access to very cheap credit or what was the equivalent of quite cheap credit in the offshore market.
"So many global investors actually have quite a lot of exposure to Chinese developers via their corporate bonds. And this was once one of the most profitable corporate bond trades in the world that has since been demolished by this crackdown."
As the Chinese Communist Party's 20th National Congress approaches, the government is facing mounting pressure from the civil unrest caused by property and financial woes.
Earlier this month, the scandal of five rural banks in Henan and Anhui provinces illegally freezing all cash withdrawals due to fraud and corruption left thousands of small savers without funds and sparked violent clashes between the protesters and local authorities.
While the Chinese government appears to have addressed recent issues in a timely fashion, the effectiveness of its new policies to resolve the property crisis is yet to be seen.
