image copyrightGetty ImagesGetting the real estate bubble to deflate without being punctured.That seems to be the goal of the Chinese government.And one of the first victims of this new approach in Beijing is the second housing developer in the country by number of sales.The giant Evergrande is going through difficult times that put it on the verge of bankruptcy.The company carries a huge debt amounting to about US$300,000 million.The company's shares have fallen 80% so far this year coinciding with the regulatory tightening proposed last year by the Chinese authorities.During the summer of 2020, Beijing imposed a rule on the largest real estate developers that requires them to bring their debt levels below certain metrics or "3 red lines" in reference to the liquidity, assets or debt of the companies."Houses are to live in, not to speculate on," Chinese President Xi Jinping said in 2017.As for Evergrande, the authorities have made it clear that there will not be a total bailout, that is, they will drop the company if it does not find the money to pay its creditors by selling assets or parts of the business.However, many analysts believe that the state is likely to nationalize the more than 1.5 million homes that Evergrande has in various stages of construction in China to prevent families from suffering if the conglomerate eventually collapses.image copyrightGetty ImagesIn recent days, small demonstrations have occurred in various Chinese cities.The Chinese real estate market is truly atypical.On average, 90% of citizens own their homes: almost 87% in urban areas and about 96% in rural areas, according to a study on housing in China carried out by the University at Albany , USA.It is one of the highest rates in the world.For comparison, in the United States only 65.3% of citizens own their home, while in Germany that percentage stands at 51.1%.And it is that, as Diego Fernández Elices, General Director of Investments of A&G, explains to BBC Mundo, the "main objective of the Chinese government is common prosperity and the fact that so many citizens own their homes, is done by a sector that It cannot be dropped in any way."The "common prosperity" to which Fernández refers is the slogan of the latest campaign promoted by the Chinese president, with which he is trying to "reduce a huge wealth gap that threatens the economic rise of the country and the legitimacy of the government of the Communist Party", collects the Reuters agency.image copyrightReuters"According to the latest statistics from the Chinese government, construction still accounts for around 30% of total employment and is therefore too important to be ignored," says Yves Bonzon, director of Swiss private bank Julius Baer.It is what in economic jargon is called "too big to fail", or at least to fail completely.Behind this high percentage of owners there are some factors that have fueled for decades an expansion of the sector marked by ghost towns, disused infrastructure and a wild construction model, with exorbitant prices.In 2020, the country entered what is known as "the era of 10,000 yuan (1,318 euros, US$1,548)", referring to the fact that the average square meter remained above that amount for several consecutive months, he explains. in a recent analysis by the EFE Agency.One of the important factors that has contributed to the bubble is cultural."The wealth of Chinese households is based on brick, mortar and speculative fervour. But on the cultural side, there is not only the aspiration to own property, but there is also an unwritten social requirement that, for example when you're getting married, you must own property," explains Sam Lecornu, CEO and co-founder of Stonehorn Global Partners."There are not many Chinese who consider renting as their first option. Owning a property in China is, by definition, the equivalent of the American dream," he adds.Just over 20 years ago, the Chinese real estate sector did not exist.image copyrightGetty Images"For much of the second half of the 20th century, China was a massive public rental society, with private ownership accounting for less than 30%. Housing was seen as a social welfare benefit provided with heavy subsidies by the socialist government" says in a study Youqin Huang, professor in the Department of Geography and Planning at the University of Albany, United States."However, in the 1990s, China launched reforms to privatize and commercialize its housing system, as part of its market transition," he adds, referring to the opening-up process that led to the country's explosive economic growth, especially after its entry in 2001 into the World Trade Organization.Another of the factors that for years contributed to the purchase of housing were the strong obstacles to investments abroad.Chinese citizens then only had the domestic market left.image copyrightGetty Images"If you look at the capital controls that exist within China and you look at the assets that can be invested in, property is one of the favorites. And many Chinese own more than one. They may have a second or a third home," Lecornu tells BBC Mundo.What often sets this market apart from any other in the world is that buyers typically "pay an initial deposit equal to 50% of the home's price or even buy outright with cash," says the founder of Stonehorn Global Partners.The use of bank loans, therefore, is not as intensive as in other large economies."Unlike what happened in the United States with the so-called subprime crisis, the Chinese are not massively buying their houses with debt."So how do they do it?image copyrightGetty ImagesChina's one-child policy, or one-child policy, was a population control measure established in 1979.For sons, in particular, it falls to "mom and dad's bank," backed by the marriage market.Due to the one-child law, there are about 30 million more men than women looking for a partner in China, according to the latest official data.Chinese parents know that their children's chances of getting married increase if they own a home."It is customary for the husband to provide a house," Jieyu Liu, deputy director of the China SOAS Institute, explained to the BBC in 2017, when it came to light that 70% of Chinese millennials (between 19 and 36 years old) owned of a house.image copyrightGetty Images"Because the wages of young people are so low, the husband's family is expected to take responsibility for buying a house in his son's name, or paying the deposit. Many love stories end in failure if the men cannot provide marital home," he added.Added to this is the fact that elderly family members often move with their children in their last years of life.Therefore, many see this investment in the name of their son or daughter as an investment in the future of the whole family.The "family bank" is also the first resource for those looking for a second home, as turning to parents, grandparents or even brothers-in-law is not unusual in the thrifty Chinese culture.image copyrightGetty ImagesIn the heat of all these factors in recent decades, a real estate industry has grown with great benefits, which in some of its sectors has become uncontrolled.The Asian giant's real estate sector began to overheat in the late 1990s, when regulators at the time opened their hands to developers eager to take advantage of the Chinese brick boom.Companies like Evergrande began to expand into the food, energy or even entertainment sector, with the purchase of a football team, and expanded their objectives to real estate developments abroad.This expansion was done through bank debt or financed with the deposits of home buyers in China.Local governments and the central government played a key role in this growth."In addition to privatizing existing public housing and ending the provision of subsidized rental housing, the development of private housing and ownership has been strongly encouraged [by the government]," Professor Huang says in his report.image copyrightGetty ImagesAnd it is that in China the ground belongs to the State.Any company or organization that wants to develop a housing, industrial or commercial project must obtain the right to use that land.This right of use, however, has a time limit, in the case of residential project developments it is 70 years, after which the State may renew or revoke said right of use.That is why real estate developers do not normally buy lots of land and keep them unbuilt for years while they revalue as in other countries."The government usually sells [the use of] the land selectively and in this process receives money from the sale of the land, which is an important source of government revenue," continues Lecornu.Beyond the fact that the real estate sector employs millions of people in China, it is correct to say that the authorities at different levels had an interest in the model continuing to work, adds the expert.image copyrightGetty ImagesTo understand the bubble and the possible domino effect of the Evergrande crisis, the role of the banks, also controlled by the State, is essential."Chinese banks, insurers and funds have provided significant funding in recent years and Chinese banks' large exposure to real estate is one of the most important risks facing the Chinese financial system," says Eiko Sievert, director of the rating agency Scope Ratings.The firm has lowered its growth expectations for China to 8.6% for 2021, from 9.3% due to "the weakness of the Chinese real estate sector, which has already slowed down national economic activity this year," he adds.Hence, analysts agree that the possible social unrest that Evergrande's million-plus unfinished homes would create is a bigger problem than the debt itself."The largest political party in the world is also the largest property owner in China. It has a great interest in intervening and using all its powers to prevent further disturbances," Lecornu says, referring to what will be Beijing's most imminent objective: that citizens do not suffer and continue to trust in the "Chinese dream".Now you can receive notifications from BBC World.Download the new version of our app and activate it so you don't miss out on our best content.© 2022 BBC.The BBC is not responsible for the content of external sites.Read about our stance on external links.