Pan Shiyi Breaks Silence with Long Article, Exposing 30-Year Scam in China's Real Estate Industry

A netizen pointed out that every February and March, the Chinese Communist Party (CCP) introduces real estate policies not to save property prices, but to trap more families. Many are suffering massive losses and being slowly "boiled like frogs in warm water." (Screenshot from video)

[People News] Pan Shiyi, the former real estate mogul of mainland China and founder of SOHO China, who has been absent from the public eye for over three years, has recently broken his silence by publishing a lengthy article titled "My Reflections." In this piece, he reveals a shocking truth: the Chinese real estate industry has, over the past thirty years, morphed into a complete "Ponzi scheme" under the joint efforts of the Communist Party authorities and real estate companies.

What does it mean for real estate to be a "Ponzi scheme"?

In his article, Pan Shiyi notes that the mainland real estate industry is on the brink of collapse, with losses amounting to trillions. He emphasises that the real critical issue is not the high housing prices, but rather the transformation of the entire operational model of the industry.

So, what is a Ponzi scheme? Simply put, it involves "robbing Peter to pay Paul," where the money from new investors is used to cover the losses of earlier ones. Pan Shiyi recalls visiting a sales office where he observed long lines of people waiting to buy homes. He realised that these buyers were not purchasing to live in the properties; instead, they assumed that housing prices would continue to rise, believing there would always be a higher-priced buyer ready to take over. At that moment, he told his colleagues four words: "Ponzi scheme."

In this chain, real estate companies no longer rely on sound business practices but depend on three key factors: the next round of financing, the next buyer, and the next price increase. If any of these three links breaks, the entire system will collapse. This phenomenon is often referred to as "passing the parcel," and only a select few can ever exit the game.

How did this scam begin? Pan Shiyi traces the timeline back to 1998.

That year marked a turning point, as China eliminated welfare housing allocation and entered the era of commercial housing. To stimulate the market, banks introduced mortgage loans. Initially, the down payment was set at 50%, representing a leverage of one time. However, as market performance fell short of expectations, banks and developers began to recklessly increase leverage, reducing down payments to 40%, 30%, 20%, and even the outrageous 5% down payment, which equated to 19 times leverage. Even more absurdly, some individuals even advocated for 'zero down payment.'

Pan Shiyi remarked that he opposed zero down payment during a CCTV program at that time, arguing that it was akin to gambling with other people's money, posing an unlimited risk. Ironically, all of his candid remarks were edited out of the broadcast. This also supports another statement in his article: because he spoke the truth, he faced ostracism from the industry for 20 years.

What has allowed this scam to endure for so long? Pan Shiyi analysed four interconnected forces: local governments, developers, banks, and homebuyers.

Local governments have played a crucial role in supporting and driving this 'Ponzi scheme.' Their daily operations heavily depend on 'land finance,' which means relying on land sales for their livelihoods. This creates a subjective incentive to inflate land prices, as the land is state-owned, and not selling it would be seen as wasteful. The continuous rise in land prices has fostered the illusion in the real estate market that 'housing prices will always increase,' thereby sustaining the entire Ponzi scheme.

Local governments and developers have developed a distorted symbiotic relationship. Developers require significant land hoarding to bolster their 'land banks' for bond issuance and financing, which conveniently meets local governments' needs for land revenue. This has transformed industry competition into a perverse race to see who can acquire more land, secure financing more quickly, and expand more aggressively.

Banks are continuously lending and leveraging, as officials who approve loans can profit from these transactions; it is public money, but they receive private benefits in return.

Homebuyers have become gamblers, wagering that housing prices will continue to rise, hoping for overnight wealth.

These four parties have created a closed loop; if any link in this chain breaks, everyone will collapse together.

The Collapse of Integrity and Systemic Risk

Pan Shiyi reflects that the root of the industry's crisis lies in the erosion of integrity.

When the entire system is founded on deception, when developers blindly hoard land to issue bonds, when banks overlook risks for profit, and when homebuyers are solely focused on speculation, the foundation of this industry is lost. He asserts that integrity is the essential bottom line; maintaining this bottom line means that a company's bankruptcy is merely a personal commitment loss; losing this bottom line means that society as a whole must bear the consequences.

Currently, the foundation of real estate is gone, and even the foundation of integrity among Chinese people is shaking. This situation is no longer merely a risk; it is a 'systemic collapse.'

Many people question Pan Shiyi, pointing out that he himself started in real estate, and now he has gone to the United States to make cold remarks. It is reported that he has already settled in New York.

However, viewed from a different angle, Pan Shiyi's 'success' is rooted in his clear perception of the underlying reality and his ability to escape. In 2021, he sold a significant portion of SOHO China's assets to Blackstone Group. Although he faced challenges afterwards, this move was essentially a withdrawal. He no longer cares about the profits he made; what matters to him is whether he can survive and exit this Ponzi scheme.

At the end of the article, Pan Shiyi offered three recommendations for the industry's future: First, promptly address outstanding issues without procrastination. Second, prioritise the protection of homebuyers' rights and honour the commitment to deliver homes. Third, return to the residential nature of properties and rebuild the foundation based on integrity.

Pan Shiyi's extensive ten-thousand-word article acts as a mirror, reflecting the madness and absurdity of China's real estate sector over the past thirty years.

When the music stops, who will be the last buyer? It will be those ordinary citizens who believe that housing prices will always rise, draining their wallets. The cost of this deception is substantial, and restoring the lost trust and confidence may require more than thirty years. △