The property market kept expanding because investors and developers generally thought that it was far too important for Beijing, which depended on it to maintain rapid rates of economic growth and households’ net worth, so any downturn would be short-lived. The story of how China’s property market reached this point is an illustration of both Beijing’s power over market forces and its limitations. But it was just last week that markets suddenly and collectively decided that China’s property sector now posed a meaningful risk to the global recovery-and to China’s long-term growth prospects. Informed China observers have been concerned about the imbalances in China’s property market, often described as one of the largest financial bubbles in history, for over a decade. The late Massachusetts Institute of Technology professor Rudi Dornbusch famously remarked, “The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.” Last week’s market panic over China’s property market and its largest and most indebted developer, Evergrande, was a case in point.
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