The report explains that China's real estate sector has benefited from the nation's strong economic growth and favorable government policy since the beginning of economic reforms. As a result the industry has for a long period of time enjoyed a remarkable expansion. But with the slowing of the economy and the tightening of credit, Xinhua Finance believes that the recent liquidity problems of the industry are the beginning of a process of unfolding credit risks associated with the nature of the industry that have accumulated over time. Xinhua Finance indicates that the adjustment by China's real estate industry to the on-going depressed environment is likely to extend over a significant period of time and suggests that investors exercise caution in considering the credit risk implications for debt securities issued by the real estate industry.
The report further points out that the risks confronting the industry arose from an imbalance amongst factors such as markets, development and management expertise, technology, and financing. The continuous growth of the real estate markets without undergoing significant adjustments has led to the accumulation of risks, an accumulation which is now beginning to release. Such imbalances are almost inevitable when the market starts from a very low base and expands at such a rapid pace. Compounding the risk is the fact that China has yet to fully transform into a market economy. China's real estate sector has been a captive of struggles between policy-guided and market-based development models since the industry started up. In light of the significant role played by the industry in China's overall economy, governmental change in any policy or level of macro-economic adjustment will impact the real estate sector to some degree.
