(Bloomberg Opinion) — The 40th anniversary of Shenzhen as a special economic zone was celebrated with much fanfare. President Xi Jinping came down from from Beijing to deliver a 50-minute speech, and offered all sorts of policy goodies to tech and venture capital firms. 

Conspicuously missing was a nod to the real estate tycoons in town. On the government’s list of 40 MVPs, or the most valued persons contributing to Shenzhen’s rise, were the usual suspects such as Pony Ma of Tencent Holdings Ltd. But intriguingly, not a single property developer — not even Wang Shi, founder of China Vanke Co. — appeared on the list. 

That’s quite a snub, given that real estate investment is big business in the tech hub, exceeding 300 billion yuan ($44.6 billion) last year. Vanke, the city’s largest developer, is so intertwined with Shenzhen that it went public there in 1991, one of the first on the then-nascent stock exchange. Vanke has been careful with debt build-up, something of a counterpoint to an industry addiction that irks Beijing. 

There’s a growing sense in the central government that soaring property prices are hurting China’s economic growth. Reading tea leaves from the MVP list, as well as the seating chart during Xi’s speech Wednesday, one can tell that the president is not enamored of property tycoons. 

This concern can be felt the most in Shenzhen, China’s Silicon Valley strategically located on the border with Hong Kong. Growing from a fishing village of 60,000 people in 1980 to 13 million today, it’s a crucial piece of the Greater Bay Area that has surpassed the financial hub in gross domestic product. The property market has long been unstoppable and didn’t miss a beat with Covid-19. As soon as China lifted its lockdown, anyone with entrepreneurial spirit there went apartment hunting. Existing home prices rose 9.7% in March from the same period in 2019, the fastest pace in three years, even as venture capital funding dried up and tech workers lost their jobs. Subsidized small business loans were not put to proper use.

Renting an apartment has become unaffordable. Young professionals earning a basic salary, their wealth tied to stock options that may never materialize, are a common sight in  “urban villages,” crowded, tightly clustered warrens of apartment buildings. There’s an increasing concern that in the future, fresh college graduates may not want to join tech start-ups, and not for lack of ambition. Perhaps they just won’t want to live in ghettos. 

In recent weeks, real estate developers have been in the limelight, especially after news reports that China Evergrande Group, the nation’s second largest by sales, had warned in a letter of an impending credit crunch. Evergrande has said that the letter to the Guangdong provincial government was fabricated, but market jitters persist. Investors have been sifting through developers’ debt pile, classifying their status with Beijing based on the new “three red lines.” 

Corporate deleveraging is just part of the story. Soaring property prices across China are hurting households’ plans to spend, since they must save more for home purchases. Beijing is seeing this played out in macro statistics: Retail sales failed to bounce back to pre-virus levels until August, months after lockdowns were lifted. Chinese didn’t feel like going out to eat or shop, but still crowded real-estate showrooms set up by developers. 

Xi has a mantra that apartments are to be lived in, not speculated on. Yet during the October Golden Week holiday, Evergrande offered its deepest discount in history to boost apartment sales. No surprise, speculative buyers dived in. 

In China, real estate deals are still a backroom business. Investors thus carefully need to watch things like the seating chart at the Shenzhen celebrations to fathom who’s in favor and who’s out. Placed diagonally behind Evergrande Chairman Hui Ka Yan was a Buddhist monk, the abbot of Shenzhen’s Hongfa Temple, netizens pointed out. Perhaps poverty, chastity and obedience are virtues that Hui, one of China’s richest men, could learn?Xi is now fighting an all-out economic war with the U.S.. He can’t afford having China’s best and brightest spending their energies — and money — flipping apartments. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron’s, following a career as an investment banker, and is a CFA charterholder.

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