Will Cong

Associate Professor of Finance

Will Cong is professor of finance and an expert on financial technology, corporate finance, economics and business big data. He says if Evergrande defaults there may be a new wave of joint state-private ownership in China, now with the real estate sector.

“If Evergrande defaults, its lenders are going to suffer and the government would need to step in to take over the firm and seize its properties and assets because it is hard for other private firms to have the capacity to absorb Evergrande. At least, the government or regulatory agencies have to organize a restructuring or bail-out. Because the banks and lenders may not recover fully the loan principles, this would become a transfer of wealth from them to the government in some sense. In fact, many other real estate developers may suffer the same fate.

“We note that state-owned, or partially state-owned, real estate developers are expected to suffer less from the "three red lines" imposed on them and "two red lines" on banks, because they enjoy better access to funding through the ecosystem of state-owned entities and implicit guarantees by the state, and they will have opportunities to take over or absorb other privately owned real estate developers that default.

“We might see a new wave of joint state-private ownership, which often involves a transfer of wealth from the private sector to the public sector and the government. To some extent, this is a general trend that we observe happening in China. First, it happened to the tech sector, and big tech firms relinquished their data and payment system control to the regulators. Then it happened to the education sector where private for-profit education companies took a big hit. Now, it is happening with the real estate sector.

“Unlike the tech and education sector that involve more specialized expertise, state-owned enterprises can more easily take over private-sector businesses. Therefore, the transfer may be large. I am not saying these are what the policies intend to cause, but may become their unintended consequences, with profound ramifications for the economy.”

Robert Hockett

Professor of Law

Robert Hockett is a professor of law at and an expert in financial and monetary law and economics. He says ‘quick fixes’ for economic growth, like the real estate bubble China has fueled, ultimately end first in bust followed by private sector debt-deflation.

“In recent years China has taken a page from the Clinton- and Bush-era American playbook for promoting economic growth: no longer able to rely as it once did exclusively on 'beggar thy neighbor' export-led growth policy, the country has fueled commercial and residential real estate bubbles instead, hoping thereby to boost domestic consumer demand as a substitute for comparatively lower reliance on export sales.

“The problem with this bubble strategy, as the U.S. discovered in 2008, is that it must ultimately end first in bust, then in private sector debt-deflation. The current woes of Evergrande and other Chinese real estate firms are simply China's rendition of this hard lesson.

“Unlike George Bush's U.S. in 2008, however, Xi's China in 2021 both understands the problem and has the fiscal and regulatory tools to address it. This is precisely what Xi's recent 'rebalancing' efforts, focusing on gross inequality and other 'capitalist excesses,' are all about.

“There is no sustainable form of continued economic growth that does not tie middle class purchasing power directly to macroeconomic growth itself. 'Quick fixes' like export and real estate bubbles are more quick than fix.”