Will Property Implode China's Economy? Not Necessarily

12/8/2023 2:19:23 AM

(MENAFN- Asia Times) Forty years of continuous growth has transformed China into one of the world's two largest economies.

This is a remarkable achievement that has lifted hundreds of millions of people out of poverty and into the global middle class, consistently surpassing expectations and confounding those who predicted an economic bust.

That pace of growth is now slowing for several reasons. Like in many advanced economies, China's population is getting older – a
demographic transition
that has been exacerbated by China's one-child policy between 1980 and 2016.

Globally, there is post-Covid-19 resurgence of economic nationalism. Trade growth, already suffering from market saturation, is slowing as manufacturers in Europe and North America reshore, diversify their sources of supply or their governments impose trade barriers.

But there is another brake on China's growth. Its economy has for many years depended on outsized domestic investment in real estate and infrastructure and those investments are showing sharply diminishing returns.

Local governments that rely on land sales for revenue need to service their debt and revenues are collapsing as the real estate boom falters.

Will China's economy melt down as a result? Not necessarily – at least not in a financial crisis of the kind the West experienced in 2007–08. But it will not be easy to manage these problems, the remedies may be difficult, and the end result is likely to be much slower trend growth.

In joint research with International Monetary Fund economist Yuanchen Yang, we have estimated how much of China's economy depends on real estate and associated infrastructure.

MENAFN08122023000159011032ID1107558755

Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.