By preventing real estate developers to go under through new bank loans is exactly why there are so many empty apartments and shopping malls in China today. Because the developers can build without much consideration for the viability of the projects as they know their backs are covert. This gives infrastructure projects in China a speculative element and sound planning and judgement when starting new projects is being undermined by taking a lot of the risks away for the developers.
I think you are making incorrect assumptions about what is happening.
The Chinese banks don't give developers a blank cheque to borrow as much as they want, nor are they lending the money for free.
A lot of developments in China sit partially complete precisely because the Chinese banks are doing their job.
Chinese banks still carry out the same risk assessment on lenders as western banks, the big difference is that if Chinese banks decide a loan is risky, they tend not to call that in unless it's exceptionally risky. Instead they effectively hold the loan. You, as a developer isn't going to get more money from the bank unless things change drastically. But OTOH, the bank isn't going to call in your loan knowing full well you have no hope of paying it and have to declare bankruptcy as a result.
The loan is held, not written off, and will continue to accrue insterest owed to the bank, so the longer the development sits idle, the more that will eat into the developer's profit margins.
In addition, the banks would never loan you all the money for a development, so the developer will have a significant amount of their own capital tied up in the developments.
Both of those factors would work to motivate developers to find solutions to their problems rather than thinking its someone else's problem.
The Chinese knows the capitalist game well enough to know you always need to make sure people have skin in the game to ensure they are properly motivated.
Both the banks and developers would have done their homework and concluded that a project is viable and likely to succeed before the bank would agree to a loan (why many SMEs complain about not being able to get credit - they don't pass the bank's smell test).
What more, the kind of 'ghost cities' western media love to fret about would almost certainly have been green lighted, if not commissioned by the Chinese government, who would have done their own due diligence in the planning phase.
The biggest direct impact all of the Chinese controls on banks is having on real estate is keeping the prices stable.
House prices are not falling as they should be in a capitalist market forces economy from all the extra supply. That is frustrating for first time buyers struggling to scrape enough together to buy their first home, but it is a massive relief to home owners and developers.
There would be massive social unrest if people see their most valuable possession - houses, fall significantly in value. Such a house price collapse will also cause developers to scale back future developments, which would negatively impact both the availability and price of housing further down the line, after the market recovers.
What China needs to watch out for is bubbles forming in the housing market from speculation. China is controlling for that, but by not using price to do it. They are restricting the availability of capital by making it harder for people to take out a second mortgage.
Generally speaking, Chinese housing prices are still well within healthy levels when compared to international prices of similar level cities, household gearing and income.
The real reason why the US, Japanese and European economies are going under is because they wont allow unprofitable companies to go bust. This has created a lot of bad debts and bubbles in their economies. The problems in their economies has grown so large that they can no longer deal with these problems without a systemic collapse. China in my view hasn't reach that stage yet but is at risk going towards that direction.
Too big to fail only really came to prominence after 2008, but the western economies have been in relative decline since long before that.
I firmly believe the primary cause is the oversize, disproportionate and downright damaging impact of western stock markets.
The stock market is supposed to be s way to connect industry with small time investors, allowing businesses to effectively pool many small bundles of cash to generate a meaning net total that they could use to invest in the business to increase/improve productivity and so grow the business and the national economy.
Modern western stock markets now have a fundmentally different primary purpose - it is the accumulation of wealth, but rather than direct that towards industry to boost productivity, a significant, if not the majority, of that pool wealth is getting siphoned off into the pockets of a very very small number of individuals.
Rather than helping to boost national economy growth, more and more, the stock market hinders it, by taking more and more money away from productive activities, and giving it to a tiny number of people who ends in wasting massive amounts of it.
It's a very simple economic truth that you generate far more economic activity giving $1000 each to 1000 people as opposed to giving $1,000,000 to one person.
Not only do you loose out on normal economic activity, giving so much more to so few people also vastly increases the likelihood of that money being employed use and wasted.
Millionaire and billionaire playboys have very different needs and priorities to the remaining 99% of the population. But because they control so much of the wealth, they direct a disportionately large part of the economy towards building extremely expensive, niche items to satisfy their own demands while the rest of the economy suffers chronic under investment as a side effect.
America is by far the most wealthy nation in the world, yet their schools are shamefully underfunded (the vast majority of normal schools, not the super elite 1% Ivy League universities and feeder private schools funded and used by the 1%); their infrastructure is crumbling; their healthcare system for the poor is atrocious, and their industrial base is rusting away.
All of that is a direct result of the few taking way more than they have any right to, and causing the whole to suffer as a result when there isn't enough wealth and money left to cover basic, fundamental public goods and services after they have taken their lion share.
Simply put, western economies have been under forming because they are pulled way out of balance and point of optimal equilibrium by the wealth and power of the few, who use their wealth and power to change the very rules of the game to give themselves an unfair advantage, thereby allowing them to gain more wealth and power and so creating a self-sustaining cycle of greed.
Greed is not necessarily a bad thing, it motivates people to come up with break throughs and innovations. That is not only fine, it is necessary to help an economy and people keen their comparative edge.
However, when people turn their minds from legitimate pursuits what I call positivity innovation, where you come up with new technologies or find better, more efficient ways of doing things; and instead turn to what I call negative innovation, where instead of making something of real value, you only seek to game the system to get a bigger share of the pie, well, that is where your economy starts to suffer and get into trouble.
It is my belief that a core part of good governance is to be on the lookout for negative innovation and come down hard on anyone caught doing it.
The Chinese government does that, western governments does not, and there is a huge part of the reason why the Chinese economy has been able to grow so successfully so consistently without suffering the booms and busts that have become characteristic of western economies.
