Source: Author’s calculation based on data published on the website of the National Bureau of Statistics of China.
Homebuyers - often middle-class investors buying multiple units - kept their blind belief that prices could only go up, and simply began borrowing instead of using their own savings for deposits towards purchases. In March 2021, loans to individuals, largely driven by real estate, increased by 12.6% YoY. The strict credit rules for real estate lending, promulgated in December 2020 by the PBOC, had clearly very little effect on the housing bubble.
It is therefore clear that the government has had to choose between ineffectiveness leading to even higher future risks from a debt bubble, or teaching a lesson that may backfire, create snowballing defaults and a deflationary cycle. This is exactly where things stand in September 2021.