Abdi Latif Dahir in Nairobi, Emily Schmall in New Delhi, Skandha Gunasekara in Colombo, Sri Lanka, Salman Masood in Islamabad, Pakistan, contributed reporting. Li You and Ana Lankes contributed research.

View Source

>>> Don’t Miss Today’s BEST Amazon Deals! <<<<

U.K. Borrowers React to Soaring Interest Rates in Mortgage Market

LOUGHTON, England — After nearly two decades of renting in one of the world’s most expensive cities, the Szostek family began the week almost certain that they would finally own a home.

Transplants to London who fell in love as housemates, Laetitia Anne, an operations manager from France and her husband, Maciej Szostek, a chef from Poland, had long dreamed of being homeowners. They had waited out the uncertain pandemic years and worked overtime shifts to save up for the deposit for a mortgage on a three-bedroom apartment in a neighborhood outside London. Their 13-year-old twins were excited they could finally paint the walls.

That was before British financial markets were upended, with the pound briefly hitting a record low against the dollar on Monday and interest rates soaring so rapidly that the Bank of England was forced to intervene to restore order. The economic situation was so volatile that some mortgage lenders temporarily withdrew many products.

By Tuesday evening, the Szostek family learned the bad news: The loan that they were close to securing had fallen through. Suddenly, they were scrambling to find another lender as interest rates climb higher.

loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.

Rising home prices and income inequality priced many out of the market, but for strivers who aspired to homeownership, the latest ruptures to the economy hit hard. The release of the new government’s sweeping plan for debt-funded tax cuts led to a big uptick in interest rates this week that roiled the mortgage market. Many homeowners are calculating their potential future mortgage payments with alarm, amid soaring energy and food prices and a general cost-of-living crisis.

Before they were informed they were no longer eligible, the family had been in the final stages of applying for a five-year fixed-rate mortgage on an apartment priced at £519,000, or around $576,000, in the leafy parish of Loughton, a town about 40 minutes north of London by train where the streets fill with students in the afternoon and the properties span from lower-end apartments to million-pound mansions.

according to the Financial Conduct Authority. And more than a third of all mortgages are on fixed rates that expire within the next two years, most likely exposing those borrowers to higher rates, too. By contrast, the vast majority of mortgages in the United States are locked in for 30-year fixed terms.

And the abrupt surge in interest rates could threaten to set off a housing market crisis, analysts at Oxford Economics wrote in a note on Friday, adding that if mortgage rates stayed at the levels now being offered, that would suggest that house prices were around 30 percent overvalued “based on the affordability of mortgage payment.”

“This just adds a significant further strain to finances in the order of hundreds of pounds a month,” said David Sturrock, a senior research economist at the Institute for Fiscal Studies, adding that the squeeze on household budgets will affect the broader economy.

Uncertainty and even panic was clear this week, with many homeowners seeking financial advice. Mortgage brokers said they were receiving a higher volume of inquiries than normal from people stressed about refinancing their loans.

“You can feel the fear in people’s voices,” said Caroline Opie, a mortgage broker working with Ms. Anne who said she had not seen this level of worry in a long time. One couple this week even called her the morning of their wedding, she said, to set an appointment to refinance their mortgage next week.

the war in Ukraine. “Something has got to give,” he said. “Prices are too high anyway.”

To save for the deposit, Mr. Szostek, 37, picked up construction shifts and cleaning jobs when restaurants closed during Covid-19 lockdowns. A £5,000 inheritance from Ms. Anne’s grandfather went into their deposit fund. At a 3.99 percent interest rate, the mortgage repayments were set to be about £2,200 a month.

“I wanted to feel at home for real,” said Ms. Anne, adding she would have been the first in her family to own a property. Mr. Szostek called it “a lifelong dream.”

On Wednesday night, that dream still seemed in reach: The mortgage dealer Ms. Opie had found another loan, which they rushed to apply for.

The higher interest rate — 4.6 percent — will mean their new monthly mortgage payment will be £2,400, the upper limit of what the Szostek family can afford. Still, they felt lucky to secure anything at all, hoping it will mean their promises to their children — of bigger bedrooms, more space, freedom to decorate how they like — will materialize.

They would wait to celebrate, Mr. Szostek said, until they had the keys in hand.

View Source

>>> Don’t Miss Today’s BEST Amazon Deals! <<<<

If the Economy Is Shaky, Why Are Company Profits Still Strong?

In its earnings report, Ally Bank, a big auto loan maker, provided data on past-due auto loans in the second quarter for borrowers at a range of income levels. Past-due loans were either at or close to prepandemic levels for borrowers with lower incomes.

Ally declined to provide the same data for earlier quarters, making it impossible to know how quickly past-due loans might have risen. On its earnings call, Jenn LaClair, Ally’s chief financial officer, said, “We have continued to invest in talent and technology to enhance our servicing and collection capabilities and remain confident in our ability to effectively manage credit in a variety of environments.”

Some analysts think the pullback in spending could spread to wealthier households.

“You’re going to see it go up the income scale as the year unfolds with people sitting there, saying, ‘I’ll go without rather than spend this much on that’ or ‘I’ll trade down to something more affordable,’” said Mr. O’Rourke, the JonesTrading strategist. He added that he was waiting for earnings from Macy’s and Nordstrom, which are scheduled to report in August, to see if that was happening.

The concern is that the heavy summer spending that has recently bolstered the earnings of the hospitality industries and the airlines is not sustainable. “There’s a faction of the market that’s quite convinced that when we get to the fall and the bills from the summer spending come home to roost, the consumer will be in a much trickier spot,” Mr. Barnhurst of PGIM said.

An exchange this earnings season reveals how chief executives and companies can keep the economy going, even when they fear that a downturn may be at hand.

Jamie Dimon, the chief executive of JPMorgan Chase, warned in May that storm clouds were gathering over the economy. On JPMorgan’s second-quarter earnings call, Mike Mayo, an analyst at Wells Fargo, asked Mr. Dimon why the bank had committed to investing such large sums this year if things could turn dire.

View Source

>>> Don’t Miss Today’s BEST Amazon Deals! <<<<

Solving the Housing Crisis Means Building When No One Is Buying

Last year, Freddie Mac estimated the nation’s housing supply deficit at 3.8 million units, up from 2.5 million in 2018. Other analysts come up with different figures, but pretty much everyone agrees that the country hasn’t been building nearly enough homes to keep up with demand, especially for middle and lower-income families. The failure to build those units is the single biggest contributor to the affordability crisis that in recent years has spread from a few coastal cities to a much larger swath of the country.

Sam Khater, Freddie Mac’s chief economist, said there was an irony to what’s happening right now: The Federal Reserve is trying to snuff out inflation by increasing interest rates, which is leading to a pullback in construction, which will make housing even less affordable down the road. In a sense, policymakers are solving the immediate cost-of-living crisis (inflation) by making the longer-run cost-of-living crisis (housing) even worse.

“It’s an unintended consequence,” Mr. Khater said.

The housing market has responded so quickly to the Fed’s actions because it is built on debt, making it ultrasensitive to interest rates. Builders borrow money to build new homes, then sell them to buyers who, for the most part, borrow 80 percent or more of the home’s cost. When banks pull back on credit by raising monthly borrowing costs, it causes buyers and builders to retreat for different versions of the same reason, which is the fear they will be left with property they can no longer afford and might be worth less than they paid for it to boot.

The slowdown in homebuilding wouldn’t have such a significant effect on the nation’s overall housing supply if builders could quickly adjust to demand, making up for the recessionary shortages during boom times. But they can’t: Housing is a hugely fragmented industry of mostly independent companies that includes developers that spend decades turning raw land into parcels that can be built upon and subcontractors that hire laborers by the hour. The system works fine when demand is strong, but deteriorates with even a modest sign of trouble and can take years to restart, creating a backlog that gets deeper each time building slows.

“It’s much easier to turn it off than to turn it on,” Mr. Palacios said.

The collapse of the housing market during the Great Recession put many smaller home builders out of business, and left the ones that survived extremely cautious. Housing starts cratered to 554,000 in 2009 from 2.1 million in 2005, then barely recovered, even as demand steadily grew. Only in the past couple years did developers finally start building at something close to their pre-bubble pace — only to slam on the brakes now that rates are rising.

View Source

>>> Don’t Miss Today’s BEST Amazon Deals! <<<<

In Buffalo, New Apartments Sprout Up in Vacant Warehouses

BUFFALO — Buffalo was riding a decade-long economic turnaround when a racially motivated attack by a gunman killed 10 people in May, overshadowing the progress. While the city grieved, it also had to reckon with unflattering portrayals of the East Side, the impoverished neighborhood where the massacre took place.

Those harsh takes tell only part of the story, say residents, business owners and city officials. Now, they are determined to put the focus back on the recovery.

Major efforts to improve the East Side have been afoot for years, like new job-training facilities and the overhaul of a deserted train station. And citywide initiatives to pour billions into parks, public art projects and apartment complexes have made Buffalo a more desirable place to live, advocates say.

Those efforts may have even reversed a chronic population decline: The latest census figures show Buffalo’s population has increased for the first time in 70 years.

“The other story about Buffalo needs to be told, that investments are being made,” said Brandye Merriweather, the president of the Buffalo Urban Development Corporation, a nonprofit group that works to repurpose empty city-owned lots.

“I am very sensitive to the issues that the shooting has raised,” said Ms. Merriweather, who grew up across the street from where the shooting took place and still has family in the neighborhood.

The wave of progress began in 2012 when New York’s governor at the time, Andrew M. Cuomo, pledged $1 billion in grants and tax credits as part of a revitalization effort, and it has been fueled by a mix of taxpayer funds and private investments in the years since.

Perhaps the most visible sign of Buffalo’s changing fortunes are its new apartments, which turn up in empty warehouses, former municipal buildings and longtime parking lots converted into much-needed housing. In the last decade, 224 multifamily projects — encompassing 10,150 apartments, most of them rentals, the equivalent of about $3 billion in investment — have opened or are underway, according to the office of Mayor Byron W. Brown.

And the pace of new housing appears to be quickening: A third of the total, or 78 projects, were unveiled just in 2020 and 2021, the mayor’s office said.

Among them is Seneca One Tower, the city’s tallest building and one of Buffalo’s most prominent projects. Completed in 1972 as a home for a bank, it sat vacant in recent years. Now, the 40-story downtown spire features a variety of uses after a $100 million renovation.

Douglas Development, which bought the tower six years ago, added 115 apartments while also installing a food hall, a large gym and a craft brewery. It also raised walls around a plaza to curb Lake Erie winds.

Barbara Foy, 64, who began renting a two-bedroom apartment at Seneca One this spring with her husband, Jack, 65, said she enjoyed sleeping with her blinds cracked to enjoy the glitter of the skyline. For almost three decades, Ms. Foy worked around the corner as a social worker, though she never really stuck around at night, instead driving back to her home in the suburbs.

But revitalization has helped her see Buffalo in a whole new light. “There seems to be something going on every weekend,” Ms. Foy said, adding that she enjoyed the city’s Pride parade in June. “Buffalo has really come alive, and I’m so proud of it.”

Office leasing has been slow. About 70 percent of the spaces at Seneca One are rented, most of them to M&T Bank, which is based in Buffalo, as well as a dozen small tech firms. The vacancy rate for top office buildings downtown was 13 percent at the end of last year, according to the brokerage firm CBRE, down from 14 percent in 2020.

Residential leasing, on the other hand, has been robust. It took just nine months to rent all of the apartments at Seneca One after they hit the market in fall 2020 for up to $3,000 a month, said Greg Baker, a director of development at Douglas. Buffalo’s median rent is $800 a month, according to census figures.

Since its Seneca One purchase, Douglas has acquired about 20 properties in the region, including former hotels and hospitals that will be converted to housing.

“People are selling houses in the suburbs to move back into the city, versus when I was younger, when they would live in the suburbs and commute to the city,” said Mr. Baker, a Buffalo native.

In a spread-out city that’s sliced up by highways, improving infrastructure has been a priority, too, though efforts so far have mostly come to fruition on the West Side. For instance, a stretch of Niagara Street near a bridge to Canada that was once lined with auto dealerships now gleams with new sidewalks, streetlights and a protected bike lane. Bike shops and restaurants have revived dilapidated storefronts there, too.

Nearby, workers are about to begin a $110 million overhaul of LaSalle Park, a 77-acre waterfront green space that’s hemmed in by Interstate 190. Plans call for a wide pedestrian bridge over the highway.

Softening the rough edges of Buffalo’s commercial past is also a focus downtown, at Canalside, a neighborhood-in-progress that hugs a short remnant of the original Erie Canal. On a recent afternoon, school groups milled around signs explaining how Midwest wheat and pine once flowed through Buffalo en route to Europe. Movie nights and yoga classes take place on lawns nearby.

“Buffalo may have a ways to go, but it still has come a long way,” Stephanie Surowiec, 32, said as she sat in the sun sipping a hard cider bought from a nearby stand. A nurse who grew up in Buffalo’s suburbs, Ms. Surowiec lives in the city limits today.

If there’s a model for how Buffalo can wring new uses from its industrial hulks, it might be Larkinville, a former soap- and box-making enclave in the city that developers reinvented as a business district about a decade ago. Blocklong factories that now hold offices huddle around a plaza dotted with colorful Adirondack chairs. Wednesday night concerts are a summer staple.

Makeovers of a similar scale are fewer on the East Side, but that could soon change.

This spring, officials announced an infusion of $225 million for the neighborhood, including $185 million from the state. Among the funding is $30 million for an African American heritage corridor along Michigan Avenue and $61 million to redevelop Central Terminal, a 17-story Art Deco train station that had its last passengers in 1979.

In June, Gov. Kathy Hochul announced an investment of $50 million for the East Side to help homeowners with repairs and unpaid utility bills.

Some projects have already produced tangible results, like the redevelopment of a 35-acre portion of factory-lined Northland Avenue. Though many of the neighborhood’s properties remain derelict, one, which made machines for metalworking, was reborn in 2018 as 237,000-square-foot Northland Central, an office and educational complex. It includes the Northland Workforce Training Center, which teaches job skills to area residents.

“The impact of the place has been phenomenal,” said Derek Frank, 41, who enrolled in classes after serving an eight-year prison sentence for dealing drugs. Today, Mr. Frank is employed as an electrician, as is his son, Derek Jr., 21, who attended classes alongside his father.

“Them putting that building right here in the heart of the city makes it accessible and convenient,” he added.

But East Side redevelopment plans have sometimes hit bumps. An effort to create a cluster of hospitals called the Buffalo Niagara Medical Campus has caused gentrification. But advocates point out that the hospitals, which employ 15,000, have picked up some of the economic slack after factories shut down.

Whether spurred on by public investment or other reasons, Buffalo has seen notable growth. Its population of 278,000 in the 2020 census was up 7 percent from 261,000 in 2010.

Buffalo enjoys a steady stream of immigrants, like the family of Muhammad Z. Zaman, which immigrated from Bangladesh in 2004 in part because Buffalo was one of the few places in the United States with an Islamic grade school, Mr. Zaman said.

Today, Mr. Zaman, 31, a working artist, is one of several muralists hired to add bright designs to walls of buildings left exposed by demolitions. One of his creations, which incorporates Arabic calligraphy that translates to “our colors make us beautiful,” jazzes up the side of a structure on Broadway.

“When we first moved here, I felt like we were the only Bangladeshi family,” said Mr. Zaman, who noted that there wasn’t a single halal-style restaurant in Buffalo in the mid-2000s, versus about 20 today. “Now, people are coming here from all over the place.”

View Source

>>> Don’t Miss Today’s BEST Amazon Deals! <<<<

Spokane was the Next Affordable City. Now, It’s Too Expensive.

Mr. Silbar, the real estate agent, has sold it twice in the past three years. The first time, in November 2019, he represented a buyer who offered $168,000 and got it with zero drama. This year it went back on the market, and Mr. Silbar listed it for $250,000. Fourteen offers and a bidding war later, it closed at $300,000.

When Mr. Silbar got into the business, he said, his clients were “nurses and teachers,” and now they’re corporate managers, engineers and other professionals. “What you can afford in Spokane has completely changed,” he said.

The typical home in the Spokane area is worth $411,000, according to Zillow. That’s still vastly less expensive than markets like the San Francisco Bay Area ($1.4 million), Los Angeles ($878,000), Seattle ($734,000) and Portland ($550,000). But it’s dizzying (and enraging) to long-term residents.

Five years ago, a little over half the homes in the Spokane area sold for less than $200,000, and about 70 percent of its employed population could afford to buy a home, according to a recent report commissioned by the Spokane Association of Realtors. Now fewer than 5 percent of homes — a few dozen a month — sell for less than $200,000, and less than 15 percent of the area’s employed population can afford a home. A recent survey by Redfin, the real estate brokerage, showed that home buyers moving to Spokane in 2021 had a budget 23 percent higher than what locals had.

One of Mr. Silbar’s clients, Lindsey Simler, a 38-year-old nurse who grew up in Spokane, wants to buy a home in the $300,000 range but keeps losing out because she doesn’t have enough cash to compete. Spokane isn’t so competitive that it’s awash in all-cash offers, as some higher-priced markets are. But prices have shot up so fast that many homes are appraising for less than their sale price, forcing buyers to put up higher down payments to cover the difference.

A dozen failed offers later, Ms. Simler has decided to sit out the market for a while because the constant losing is so demoralizing. If prices don’t calm down, she said, she’s thinking about becoming a travel nurse. With the health care work force so depleted by Covid-19, travel nursing pays much better and, hopefully, will allow her to save more for a down payment.

“I’m not at the point where I want to give up on living in Spokane, because I have family here and it feels like home,” she said. “But travel nursing is going to be my next step if I haven’t been able to land a house.”

View Source

>>> Don’t Miss Today’s BEST Amazon Deals! <<<<

Far From the Big City, New Economic Life

Research by Rebecca Diamond, an economist at Stanford University, and Enrico Moretti, an economist at the University of California, Berkeley, explains the attraction. They worked out how costs affect living standards in various parts of the country.

Workers without a four-year college degree earn little in the Cookeville commuting zone — their income puts them among the poorest 10 percent of households in hundreds of commuting zones across the country. After adjusting for the local cost of living, however, their purchasing power rises to the top 10 percent.

They can live more comfortable lives than if they moved to a bigger city, like Nashville or Knoxville. According to Ms. Diamond and Mr. Moretti’s work, which is based on data from 2014, the household income of a typical worker who never finished high school in Cookeville is about $43,000. In New York it is $58,000; in San Francisco, $62,000.

Still, adjusting for the local cost of living, the workers in San Francisco and New York could afford much less — roughly what someone with an income of $37,000 could buy in a city like Cleveland, which ranks in the middle of the national income distribution. The Cookeville workers, by contrast, live as if they were making $46,000 in Cleveland.

Big cities are not that good a deal for even highly educated workers. They do earn much higher wages in New York than in Cookeville — indeed, the college educated reap a bigger pay premium if they work in bigger cities than their less-educated peers. But according to the researchers, all the extra wages are eaten up by higher costs.

It’s mostly about housing. Last November, the typical home in Cookeville cost $217,303, according to Zillow. That’s one-fourth of the median price of a home in Los Angeles and one-sixth of the price in San Francisco. Median rent in Jackson County is $548 per month.

Housing costs are putting a big dent in the case for urban America. “If you are trying to raise people’s standard of living you want to move them away from big cities not towards them,” said Jesse Rothstein, an economist at the University of California, Berkeley. He wrote a research paper with David Card, his colleague at Berkeley, and Moises Yi of the Census Bureau that pours more cold water on the supposed advantages of America’s megalopolises.

View Source

>>> Don’t Miss Today’s BEST Amazon Deals! <<<<

Welcome to the Charles Dickens Luxury Apartments

When the building was threatened with destruction, in 2007, Professor Black and a charity devoted to Georgian-era architecture tried to get it preserved. They initially failed, but the wrecking ball didn’t swing immediately, in part because the 2007-8 financial crisis left many developers in no mood to spend. It didn’t help that the land behind the Annexe was known to be filled with bodies, although how many was not yet clear.

By then, the Annexe had closed, and the University College London Hospitals National Health Service Foundation Trust — the official name of the organization that owned the building — started renting a hodgepodge of rooms in it to about 40 Londoners looking for cheap, communal living. This is a common strategy among British landlords — populate vacant buildings to prevent them from being vandalized or turned into a squatters’ paradise. Renters in such buildings are known as “guardians,” a slightly misleading term.

“Nobody was walking around with a rifle,” said Dominic Connelly, who lived in the Annexe until 2017, when everyone was finally asked to leave. He paid about $600 a month for a large former patient’s room that included a working X-ray light box.

Tenants were a mix of young people — yoga instructors, actors, a club bouncer — dwelling amid an assortment of medical equipment, security systems, a reception desk and hospital signs, including one for the child psychiatry department. The setting also seems to have inspired “Crashing,” a 2016 television mini-series about young people who flirt and couple in a disused hospital, written by and starring Phoebe Waller-Bridge, the auteur of “Fleabag.”

Except that at the Annexe, people occasionally showed up to dig exploratory trenches.

“You’d see them from the windows, or you’d hear them digging,” Mr. Connelly said. “It was clear they were looking for bodies. Pretty grim stuff when you think about it, so I tried not to think about it.”

All the guardians in the Annexe knew they could be evicted any day, potentially signaling the workhouse’s imminent demise. The prospect was especially galling to a resident who, for unknown reasons, wanted anonymity and has never been identified. She contacted a scholar who had written an essay for The British Medical Journal about one of the medical heroes of the Victorian age, Joseph Rogers, a physician who served as the chief medical officer at the Strand Union Workhouse and crusaded for better conditions.

The scholar was Ruth Richardson.

View Source

>>> Don’t Miss Today’s BEST Amazon Deals! <<<<

It’s Been a Home for Decades, but Legal Only a Few Months

As a designer who specializes in residential structures, Luis Martinez has lived this at home, and has now made it his career. His design business, Studioo15, has surged over the past two years as residents across Los Angeles have used the new state laws to add thousands of backyard units. Yet about half of his clients, he said, are people like his parents who want to have existing units legalized.

Bernardo and Tomasa Martinez, both in their early 60s, immigrated to Los Angeles from Mexico in 1989. Working in the low-wage service sector — she was a waitress; he worked as a laborer loading a truck — they settled in a two-bedroom house in South Los Angeles that had four families and 16 people. Luis Martinez, who crossed the border as a child, was surrounded by love and family, in a house where money was tight and privacy nonexistent.

Eventually the family was able to buy a small three-bedroom in Boyle Heights, on the east side of Los Angeles. It sits on a block of fading homes that have chain link fences in the front and a detached garage out back. To supplement the family income, the Martinezes converted the garage into a rental unit without a permit. Bernardo Martinez and a group of local handymen raised the floor and installed plumbing that fed into the main house, while Luis helped with painting.

Luis remembers that nobody complained, probably because the neighbors were doing the same thing. “It was normal,” he said, “like, ‘I live in the garage’ and some garages were nicer than others.”

Mr. Martinez went to East Los Angeles College after high school, then transferred to the University of California, Berkeley, where he got an architecture degree in 2005. In the years after graduation, when the Great Recession struck, his father lost his job and, after a spell of unemployment, took a minimum wage job mowing the lawn at a golf course. To help with bills, they rented the garage unit to Bernardo Martinez’s brother for $500 a month. With the minimum wage, you can’t afford to pay a mortgage and food for everybody,” Tomasa Martinez said.

The point of informal housing is that it’s hard to see — it is built to elude zoning authorities or anyone else who might notice from the street.

Jake Wegmann, a professor of urban planning at the University of Texas at Austin, describes this as “horizontal density,” by which he means additions that make use of driveways and yard space, instead of going up a second or third floor. Because both the tenants and owners of these units don’t want to be discovered, there is essentially no advocacy on behalf of illegal housing dwellers, even though the number of tenants easily goes into the millions nationwide.

View Source

>>> Don’t Miss Today’s BEST Amazon Deals! <<<<

Evergrande’s Struggles Offer a Glimpse of China’s New Financial Future

HONG KONG — Xu Jiayin was China’s richest man, a symbol of the country’s economic rise who helped transform poverty-stricken villages into urbanized metropolises for the fledgling middle class. As his company, China Evergrande Group, became one of the country’s largest property developers, he amassed the trappings of the elite, with trips to Paris to taste rare French wines, a million-dollar yacht, private jets and access to some of the most powerful people in Beijing.

“All I have and all that Evergrande Group has achieved were endowed by the party, the state and the whole society,” Mr. Xu said in a 2018 speech thanking the Chinese Communist Party for his success.

China is threatening to take it all away.

The debt that powered the country’s breakneck growth for decades is now jeopardizing the economy — and the government is changing the rules. Beijing has signaled that it will no longer tolerate the strategy of borrowing to fuel business expansion that turned Mr. Xu and his company into a real estate powerhouse, pushing Evergrande to the precipice.

Last week, the company, which has unpaid bills totaling more than $300 billion, missed a key payment to foreign investors. That sent the world into a panic over whether China was facing its own so-called Lehman moment, a reference to the 2008 collapse of the Lehman Brothers investment bank that led to the global financial crisis.

struggles have exposed the flaws of the Chinese financial system — unrestrained borrowing, expansion and corruption. The company’s crisis is testing the resolve of Chinese leaders’ efforts to reform as they chart a new course for the country’s economy.

If they save Evergrande, they risk sending a message that some companies are still too big to fail. If they don’t, as many as 1.6 million home buyers waiting for unfinished apartments and hundreds of small businesses, creditors and banks may lose their money.

“This is the beginning of the end of China’s growth model as we know it,” said Leland Miller, the chief executive officer of the consulting firm China Beige Book. “The term ‘paradigm shift’ is always overused, so people tend to ignore it. But that’s a good way of describing what’s happening right now.”

speech accepting an award for his charitable donations.

He went to college and then spent a decade working at a steel mill. He started Evergrande in 1996 in Shenzhen, a special economic zone where the Chinese leader Deng Xiaoping launched the country’s experiment with capitalism. As China urbanized, Evergrande expanded beyond Shenzhen, across the country.

Evergrande lured new home buyers by selling them on more than just the tiny apartment they would get in a huge complex with dozens of identical towers. New Evergrande customers were buying into the lifestyle associated with names like Cloud Lake Royal Garden and Riverside Mansion.

annual report was Wen Jiahong, the brother of China’s vice premier, Wen Jiabao, who oversaw the country’s banks as head of the Central Financial Work Commission.

elite group of political advisers known as the Chinese People’s Political Consultative Conference.

“He could not have gotten so big without the collaboration of the country’s biggest banks,” Victor Shih, a professor of political science at the University of California, San Diego, said of Mr. Xu. “That suggests the potential help of senior officials with a lot of influence.”

Mr. Xu was also a power broker who socialized with the Communist Party’s elite families, according to a memoir by Desmond Shum, a well-connected businessman. In his book, “Red Roulette,” published this month, Mr. Shum recounts a 2011 European wine-tasting and shopping spree in which Mr. Xu took part, along with the daughter of the Communist Party’s fourth-ranking official at the time, Jia Qinglin, and her investor husband.

The party flew to Europe on a private jet, with the men playing a popular Chinese card game called “fight the landlord.” At Pavillon Ledoyen, a Paris restaurant, the party spent more than $100,000 on a wine spree, downing magnums of Château Lafite wines, starting with a vintage 1900 and ending with a 1990. On a trip to the French Riviera, Mr. Xu considered buying a $100 million yacht owned by a Hong Kong mogul, Mr. Shum wrote.

To supercharge Evergrande’s growth, Mr. Xu often borrowed twice on each piece of land that he developed — first from the bank and then from home buyers who were sometimes willing to pay 100 percent of the value of their future home before it was built.

property grew to account for as much as one-third of China’s economic growth. Evergrande built more than a thousand developments in hundreds of cities and created more than 3.3 million jobs a year.

cool down, the damage caused by Evergrande’s voracious appetite for debt became impossible to ignore. There are nearly 800 unfinished Evergrande projects in more than 200 cities across China. Employees, contractors and home buyers have held protests to demand their money. Many fear they will become unwitting victims in China’s debt-reform campaign.

Yong Jushang, a contractor from Changsha in central China, still hasn’t been paid for the $460,000 of materials and work he provided for an Evergrande project that was completed in May. Desperate not to lose his workers and business partners, he threatened to block the roads around the development this month until the money was paid.

“It’s not a small amount for us,” Mr. Yong said. “This could bankrupt us.”

Mr. Yong and others like him are at the heart of regulators’ biggest challenge in dealing with Evergrande. If Beijing tries to make an example out of Evergrande by letting it collapse, the wealth of millions of people could vanish along with Mr. Xu’s empire.

protested on the streets and complained online about delays in construction. The central bank has put Evergrande on notice.

And China’s increasingly nationalistic commentators are calling for the company’s demise. Debt-saddled corporate giants like Evergrande were given the freedom to “open their bloody mouths and devour the wealth of our country and our people until they are too big to fall,” Li Guangman, a retired newspaper editor whose recent views have been given a platform by official state media, wrote in an essay.

Without proper intervention, Mr. Li argued, “China’s economy and society will be set on the crater of the volcano where all may be ignited any time.”

Michael Forsythe reported from New York. Matt Phillips contributed reporting from New York.

View Source

>>> Don’t Miss Today’s BEST Amazon Deals! <<<<