Xi Jinping faces surprise revolt from home buyers with mortgage boycott

BEIJING • Over the past few years, President Xi Jinping has reined in China's biggest tech companies, stamped out democracy in Hong Kong and locked down 26 million people in Shanghai to eliminate Covid-19 cases.

Yet, he now faces a surprise challenge from middle-class home owners who are watching their family wealth slip away with a sustained slide in the property market, which makes up a fifth of China's economic activity.

Some 70 per cent of household wealth in China is tied up in property, far more than in the United States, making it one of the most sensitive political issues for the Communist Party.

For months, Mr Xi has stood firm in reining in over-leveraged Chinese developers, spurring a record wave of defaults that spooked global investors and brought at least 24 leading property firms to the brink of collapse. In the process, over US$80 billion (S$111.4 billion) has been wiped from its offshore bond market.

But now ordinary Chinese people are publicly revolting, with rapidly escalating boycotts on mortgage payments spread across at least 301 projects in about 91 cities. These home buyers accuse developers of failing to deliver apartments they have already paid for: the value of mortgages that could be affected has swelled to about US$297 billion.

"Chinese home buyers usually pool the whole family's resources to buy a home," said Associate Professor Alfred Wu from the National University of Singapore's Lee Kuan Yew School of Public Policy. "It is a life-and-death matter for them if their homes become negative assets."

For Mr Xi, the timing could not be worse. He is just months away from a once-in-five-years Communist Party meeting, at which he is expected to secure a third term in office. Moreover, he is also expected to trumpet his policies as beneficial to achieving "common prosperity" for average citizens, part of the social contract that underpins the legitimacy of one-party rule in China.

Already, signs are emerging that he will seek to ease the pain. Bloomberg reported on Monday that China may allow home owners to temporarily halt mortgage payments on stalled projects without incurring penalties, as part of a broader push to stabilise the market that includes urging local governments and banks to plug funding shortages at developers.

"It's the first time we've seen this type of mortgage boycott in China and it's clearly caught Beijing's eye," said Mr Chi Lo, senior Asia Pacific investment strategist at BNP Paribas Asset Management. "It's crucial that Xi preserves stability before the 20th party congress."

While the boycotts affect only a portion of combined mortgage portfolios, the escalation of the protests have sparked fears that broader discontent could flare up over falling prices and stalled projects. Even if a short-term solution is found, longer-term risks remain for Mr Xi. The 69-year-old leader is seeing unusually widespread discontent as he looks to clamp down on excessive debt while also seeking to eliminate Covid-19 cases, putting the economy on pace to fall well short of a 5.5 per cent annual growth target.

Many protests in China are "strategically self-limiting" to achieve a specific outcome, like recent demonstrations over a suspected billion-dollar financial scam in Henan that allowed some victims to recoup their money, according to Associate Professor Zixue Tai from the University of Kentucky, who has researched social activism in China. Still, he called the spate of unrest "some sort of spontaneous release of pent-up popular rancour with the Xi administration".

BLOOMBERG