Note this isn't merely a Chinese thing. A variation of this is in fact the default way new units get build and sold in the Netherlands, for example.
Personal anecdote. I had a mortgage for 2 full years before being able to move in to my apartment because I bought it before a single stone was laid. The way this works here is that the money is held into an escrow account for most of time, with the construction company only receiving payments in installments (e.g. 'roof finished'). Lastly, the final 5% of the purchase amount is held back until 3 months after the unit is finished, which can be extended if large defects are found. Bankruptcy risk was covered with an insurance, which was a condition to the mortgage.
I would have to assume the company didn't use those payments to fund the building of properties for earlier mortgages. The Ponzi scheme nature of it is the Chinese thing (not that it has anything to do with being Chinese, it's just the reality of Chinese real estate today and of the past decades). Paying for the construction of a new home in installments is something done across the world.
If previous poster's description is correct, they would have to, right? Or have a revolving fund of debt which is the same thing with extra steps. Builder doesn't get paid until after building things, the construction has to be paid for somehow.
I guess the money being in escrow puts the risk on the builder instead of the buyer.
You can do something similar in India as well. The benefit is that you get the flat at cheaper rate, at the risk of losing all your investment. There have been many cases of the developer going bankrupt, but nothing at the scale of evergrande.
guarantees you a spot of your choosing in a building of your choosing, which might be in demand in big cities -- there is only so much space in big, tight, well-established cities.
anecdotally, we were looking at houses to buy and many of the nice, well-priced ones, had multiple bids and even price increases (e.g. throw another $10k on it). not quite a full-on bidding war, but it became clear that if you want in you get in early, and pay for the privilege's.
Personal anecdote. I had a mortgage for 2 full years before being able to move in to my apartment because I bought it before a single stone was laid. The way this works here is that the money is held into an escrow account for most of time, with the construction company only receiving payments in installments (e.g. 'roof finished'). Lastly, the final 5% of the purchase amount is held back until 3 months after the unit is finished, which can be extended if large defects are found. Bankruptcy risk was covered with an insurance, which was a condition to the mortgage.