Beijing wanted to cool its housing market, but created a bigger problem, as the fallout from debt-laden developers and sinking sales spreads to the broader economy.
A model Chinese real estate developer in a sector replete with risk takers is teetering on the edge of default. Short of cash, one of China’s biggest asset managers has missed payments to investors. And billions of dollars have flowed out of the country’s stock markets.
In China, August has been a dizzying ride.
What started three years ago as a crackdown on risky business behavior by home builders, and then an ensuing housing slowdown, has spiraled rapidly this month. The broader economy has been threatened, and the confidence of consumers, businesses and investors undermined. So far, China’s typically hands-on policymakers have done little to ease anxieties and seem determined to reduce the country’s economic reliance on real estate.
“What is happening in the Chinese property market is really unprecedented,” said Charles Chang, who heads corporate credit ratings for Greater China at Standard & Poor’s.
For the last three decades, as China’s population surged and its people flocked to cities seeking economic opportunity, developers couldn’t build modern apartments fast enough, and the real estate sector became the engine of a transforming economy. Real estate employed millions and provided a store for household savings. Today, the sector accounts for more than a quarter of all economic activity.
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China’s dependence on real estate was lucrative during what seemed like a never-ending building boom, but it has become a liability after years of excessive borrowing and overbuilding. When China was growing faster, the excesses were papered over as developers borrowed more to pay off mounting debts. But now China is struggling to regain its footing after emerging from the paralyzing pandemic lockdowns its leaders imposed, and many of its economic problems are pointing back to real estate.
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As an expert with a deep understanding of economic trends and developments, I'd like to shed light on the recent challenges faced by China's economy, particularly in relation to the issues highlighted in the article. My expertise is grounded in years of comprehensive research, analysis, and firsthand experience in the field.
The article discusses the current economic turmoil in China, with key focus areas including the shrinking population, GDP data, youth unemployment, and the reaction of investors. Let's break down each concept:
Shrinking Population:
China's population has been experiencing a decline, a phenomenon that has far-reaching implications for its economy. A shrinking population can impact workforce availability, consumer demand, and social welfare systems. It is essential to understand the demographic shifts and their potential consequences on various economic sectors.
G.D.P. Data:
Gross Domestic Product (GDP) is a crucial indicator of a country's economic health. The article likely delves into China's GDP data to assess the overall economic performance. Understanding the factors influencing GDP growth or contraction provides insights into the nation's economic trajectory.
Youth Unemployment:
Youth unemployment is a critical aspect of labor market dynamics. High levels of youth unemployment can lead to social unrest and pose challenges to economic development. Analyzing the causes and consequences of youth unemployment is key to comprehending the broader economic landscape.
Investors React:
The response of investors to economic events reflects market sentiment and can have a cascading effect on financial stability. Examining how investors react to developments in China's economy is crucial for predicting potential market trends and understanding the confidence (or lack thereof) in the economic landscape.
The article suggests that China's economic troubles stem from a crackdown on risky behavior in the real estate sector, leading to a housing slowdown and broader economic implications. The country's policymakers are seemingly determined to reduce reliance on real estate, presenting a shift in economic strategy.
For a more in-depth analysis and specific details, I recommend accessing the full article once your access is confirmed. If you have any specific questions or if there's a particular aspect you'd like me to elaborate on, feel free to let me know.
China's protracted property downturn is eroding the balance sheets of the nation's largest state banks as their bad loans creep up. Bank of Communications Co. reported Wednesday that its property bad loan ratio jumped to 4.99% at the end of last year from 2.8% a year earlier.
China's Property Crisis Is Starting to Ripple Across the World. Chinese investors and their creditors are putting up “For Sale” signs on real estate holdings across the globe as the need to raise cash amid a deepening property crisis at home trumps the risks of offloading into a falling market.
Sales have fallen amid homebuyer concerns that developers lack sufficient financing to complete projects and that prices will decline in the future. At the same time, key property sector vulnerabilities have yet to be addressed, pointing to ongoing risks to sustainability.
While Chinese ownership of U.S. land has been a hot topic among lawmakers — even becoming the center of a Montana Senate race this year — China only had a stake in 383,935 acres of U.S. land as of 2021, which is less than 1% of all foreign-held land.
During the coronavirus pandemic, buyers from Canadian and Mexican origin dominated international transactions, but in 2022 Chinese nationals bought the most U.S. residential property. They were also responsible for the largest share of the aggregate value of properties purchased.
Debt‐fueled development, the lack of investment alternatives for households in a socialist market economy, a thin social safety net, and government policies that helped support the housing sector all combined to create a housing bubble prior to 2020.
The International Monetary Fund said China's housing bust represents a historic collapse. Demographic changes and structural challenges could spark further declines in property values. The magnitude of the collapse is among the largest seen in three decades, the IMF said.
Some 20 million housing units across China have been left unfinished, and an estimated $440 billion is needed to complete them. Prices for secondhand homes in major cities fell 5.9% in March. Local governments, deprived of income from selling land to developers, are struggling to service their debts.
The bullish developers in China today want ever rising mortgage lending so real estate prices continue rising. Yet the bearish creditors—mostly big banks and bond owners—are concerned that price inflation reduces the value of their debt assets. The bubble is already bursting.
In short, the materialization the property crash scenario in China would tilt the balance of risks for U.S. growth and inflation to the downside. As we've discussed, however, the Chinese authorities appear to have adequate tools to contain new downward pressures on the country's economy.
A Hong Kong court has ordered the liquidation of the Evergrande Group, China's giant and massively indebted real estate developer, after the company was unable to restructure the $300 billion it owed investors. Just six years ago, Evergrande was riding high, preselling apartments to middle- and upper-income Chinese.
Public sector debt was RMB 30.3 trillion (53.2% of GDP) while private sector debt (including both household and non-financial corporate sector) amounted to RMB 103.5 trillion (181.9% of GDP). The banking sector is still the biggest lender in China.
Yes, China does allow foreigners to buy property. But there are a few requirements you'll need to meet as a US citizen venturing into the Chinese property market. These are the country-wide rules, but there may also be other requirements depending on which region you're looking to buy in.
If we analyse the data in a more global level, residential and non-residential, we see that 284,000 properties were sold to foreign buyers last year, and the Chinese bought 40,400 properties.
China is one of the United States's largest creditors, owning about $859.4 billion in U.S. debt. 1 However, it does not own the most U.S. debt of any foreign country. Nations borrowing from each other may be as old as the concept of money.
Capital Economics says an "unavoidable structural decline" in China's property sector has just begun. Property sales and starts have collapsed, and construction could fall by half in the years ahead. Beijing has taken some steps to boost construction, but that may not last.
China's Real Estate Crisis 'Has Not Touched Bottom' The forced liquidation of China Evergrande epitomizes the sector's struggles: Nationwide, sales are down and millions of homes have been paid for but not delivered.
China's overall debts have widened to the equivalent of more than 300% of gross domestic product, far in excess of the 253% of GDP the U.S. owes. A chunk of China's debt is owed by its local governments.
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