C.Hina has reached a point of no return in its fight to contain what could be the biggest property collapse the world has ever seen, experts warn, citing the country’s Communist Party. It jeopardizes the leadership and the world economy.
As the West stands on the brink of a devastating recession next year, China too faces a slump thanks to a “total collapse” of public confidence in its once-booming housing market. there is Covid strategy and extreme heat waves affecting power and food supplies.
Hard times are on the horizon in China as Huawei CEO Ren Zhengfei warned this week that the cold from the recession would be “feeled by everyone” over the next decade. There are widespread warnings that it is coming.
But just as it became impossible for President Xi Jinping to lift the massive blockade that has stalled economic activity, he and his political bureau chief overturned a crackdown on reckless lending in the real estate market. It seems less and less likely. Home sales this year he fell 40%.
China’s housing market has driven growth over the past two decades and now represents the world’s largest asset class, with a notional value of between $55 trillion (£47 trillion) and $60 trillion. This is a market larger than the total market capitalization of US stocks. Now developers are being stripped of easy credit and going bankrupt, prices are dropping, homeowners are refusing to pay mortgages on unfinished homes, and sluggish property sales and construction are driving revenues into land. Local governments that rely on sales are dysfunctional.
Gabriel Wildau, a China expert at global advisory firm Teneo, said Beijing is in danger of either withdrawing its crackdown on lending or stepping up efforts to “tame the beast” of unproductive construction activity. said to be facing Ghost towns, airports, roads to nowhere.
“Governments face tough choices. But it’s like zero Covid. from,” said Mr. Wildo.
“This is where rubber hits the road. They want more tech growth, they don’t want so much real estate, but what will replace that? Confidence in the housing market is totally No industry can survive it.”
Trying to revitalize the economy is the focus of a huge array of measures announced by Beijing last week, including 300 billion yuan (£37 billion) in new infrastructure spending and 500 billion yuan worth of local government spending. It included an extension of borrowing to the government. Economists said the stimulus was expected and may not have much of an impact on an already investment-rich economy. What is needed, they say, is for Chinese households to have more cash in their hands to rebalance the economy from tired old investment models. But such a policy is politically difficult as it threatens Panjandrum’s well-established order of powerful party cadres, centralized state-owned enterprises and local governments.
Mr Wildau said Beijing had the money and expert know-how to bail out the property sector, but it would be “very expensive”. So far, despite the chaos unleashing, President Xi Jinping appears to be sticking to his plan to clean up excess and ensure that ‘homes are meant to be lived in’, not speculation. I can see.
So far, China’s export industry has held up well, and despite trade wars and lockdowns, the country has actually increased its share of global manufacturing since the pandemic began. at risk. Because demand from all over the world is likely to fall off a cliff in his loop of feedback over the next 12 months, it could become a more dangerous situation for China.
As Ren’s comments about Huawei’s outlook underscore, China isn’t the only country facing uncertainty. Western sanctions imposed over Russia’s curbs on gas supplies and its invasion of Ukraine threaten a harsh winter for advanced economies, from the United States to Europe and Japan to South Korea, fueling runaway inflation and stalling growth. The worst cost-of-living crisis in nearly 50 years is slowly engulfing the West, and will no doubt lead to a decline in demand for Chinese products as households have to focus on essentials such as food and fuel. U.S. Federal Reserve Chairman Jerome Powell rocked the stock market on Friday, saying households and businesses are in pain as he suggested the central bank would keep raising rates until inflation was defeated. rice field.
A fall in external demand is China’s “next shoe to fall” and would put the country in jeopardy, according to David Llewellyn Smith, chief strategist at Newells Wealth, a Melbourne investment and wealth management firm.
“The private sector has been hit by Omicron, the external sector has been hit by global weakness, and the public sector is doing what it can to pick up the slack, but various restraints on fiscal policy have It’s a very toxic combination for China.It’s very difficult to manage,” he said.
“Next year’s Chinese recession is completely in the frame. This will have an incredible impact on global markets of all kinds.”
It’s not clear how the world will feel about the chill that Wren warned about, but it adds an unknown element to an already dangerous mix of problems, said chief economist at the Lowy Institute, an Australian think tank. says Roland Rajah. These include: Weak supply chains. Political dysfunction in the United States. digital disruption; accelerating impacts of climate change; These challenges have even led French President Emmanuel Macron to join the pessimistic forecast, saying that the “end of affluence” is in sight.
During the global financial crisis of 2008-2009, China saved the global economy with a 4 trillion yuan stimulus package. But with Beijing cut off from the Western-led world order and debt-led growth unsupported, another Chinese rescue mission is highly unlikely. Japan is facing a Japanese-style “lost decades” as it tries to absorb its unexploded real estate loans.
“In the short term, the Chinese economy is taking a hit,” said Rajah. “It remains to be seen what the medium- to long-term impact will be. But China is also facing enormous long-term headwinds, including a declining and aging population, creeping nationalism, and increasingly difficult external relations. increase.”
And as China reaches a point of no return in its housing crisis, the global economy itself is at a crossroads. “The global economy certainly looks like it’s at an inflection point,” says Rajah. People need to prepare for a more uncertain world, but the need for smart policies is growing, so we should expect more from politicians and policy makers. “