China is the world’s second-largest economy, and its economic growth rate ranks among the top among the world’s major economies, but a research report from the United States shatters the illusion of China’s economy. A researcher from an American think tank said that the outside world has always had illusory envy for the economic policies formulated by the CCP, but in fact it was just that “the king has no clothes.” The US “Market Watch” website published an article on the 10th, discussing the serious problems in China’s economy from various perspectives in China, including the end of the growth miracle, the real estate bubble, and the COVID-19 reset policy.
According to the report, the 2008 financial crisis had a serious impact on the global economy. From the United States to Europe, the collapse of large financial institutions was in the ascendant, resulting in falling real estate prices and rising unemployment. The entire society and economy were on the verge of danger. weaken.
However, with the financial tsunami sweeping the world, China appears to be unaffected. According to Chinese official data, from 2008 to 2011, it maintained a rapid annual growth rate of nearly 10%. As China rolled out several waves of policies to deal with the financial crisis, in which local governments used heavy borrowing to finance massive infrastructure construction, fueled by a $575 billion fiscal stimulus plan, used government consumption to invest in infrastructure projects and encouraged real estate developers to provide facilitate loans.
The report pointed out that although China’s economy once entered an enviable period of rapid growth, a crisis was hidden behind its glitz. Until now, China has been unable to effectively invest in roads, bridges and other infrastructure.
“The approach to rebalancing China’s economy from one dominated by investment to one dominated by domestic consumption spending has met political opposition as vested interests in the existing model have blocked necessary reforms,” the report said.
“There has always been a certain kind of envy in the West for the superpowers of Chinese policymakers, but the truth is the king has no clothes,” said Jeremy Mark, a senior fellow at the Atlantic Council, an American think tank, and an expert on the Asian economy. It further stated: “Political priorities are central to understanding the decisions made by the Chinese Communist Party. Politics has taken precedence over other considerations in economic policymaking.”
With the 20th National Congress of the Communist Party of China set to debut on October 16, Xi Jinping, the general secretary of the Communist Party of China, is likely to usher in a groundbreaking third five-year term. But with regard to the development of China’s economy, even Stephen Roach, a staunchly optimistic optimist in the past and former chairman of Morgan Stanley Asia, also wrote in the “Project Syndicate” that he has no opinion on China. The economy is in deep doubt: “My biggest mistake was to set the consequences of Xi Jinping Thought to a minimum”.
“Under Xi Jinping, China’s new era is more about the supremacy of the Communist Party, while emphasizing power, control and ideological constraints on the economy,” said Stephen Roach. He added: “There is good reason to believe that , China’s growth sacrifice is just beginning.”
The report analyzes China’s real estate bubble and points out that this phenomenon has occurred many times in the past economic history, but the reasons for the formation of China’s real estate are different.
Michael Pettis, a professor of finance at Peking University’s Guanghua School of Management, told Market Watch that Beijing initially provided easy credit for the real estate industry in an attempt to stimulate economic activity to achieve an unsustainably high GDP growth target. Yet these past stimulus policies are turning into fundamental problems now.
Compared with other real estate, Chinese developers pre-sell unbuilt homes, use the buyer’s down payment and bank loans, and use the funds to buy more land, rather than quickly completing the promised home, the report said.
As the housing bubble bubbled, the rising debt that fueled its inflation had become something to be taken seriously. However, Beijing’s “three red lines” for the real estate market in 2020, and the new restrictions on lending have greatly restricted the credit channels for real estate development, making it impossible for developers to cover up cash shortages through borrowing, making it impossible for some developers to complete home buyers. Items that have already been paid for.
Large property developers like China Evergrande Group are also struggling to keep promises to homebuyers and lenders, and the pressure on the property sector has hit speculators hard, with property prices in China falling for 11 straight months in August, the report said. .
In an interview with Market Watch, Brad Setser, a former U.S. Treasury official and fellow at the Council on Foreign Relations, pointed out that troubles in China’s housing crisis are unlikely to spread to the financial system, which is state-owned. Beijing has also shown interest in recapitalizing banks in the past.
Given the importance of real estate development to the Chinese economy, the bursting of the housing bubble could have a severe impact on the Chinese economy even if there was no financial crisis. “Real estate investment is a much larger share of the Chinese economy than it is in the United States,” Sester added. Research shows that 70% of Chinese households put their savings in real estate.
However, China’s real estate has serious ills, and it seems a little difficult to return to its original state. Mortgage loans on unfinished properties in China are worth about $230 billion, or 1.4 percent of the country’s GDP, according to a report by Bloomberg chief economist Tom Orlik. At this rate, the value of mortgages on unfinished properties will rise to $632 billion by 2024, or as much as 4 percent of GDP.
Nowadays, many real estate developers in China have delayed the delivery of houses due to financial problems, resulting in homebuyers who have bought houses but are homeless. Pay the mortgage.
Song Houze, head of China economic research at U.S. think-tank Marco Polo, said it was difficult to know how widespread the protests were now that officials were trying to suppress messages of these boycotts.
Beijing recently provided $29 billion in loans to problematic developers, but the scale may not be enough to solve the problem, the report said. Song Houze pointed out that the CCP authorities are faced with a dilemma, because they want to stabilize the real estate industry, but do not want to send a signal that “if the private enterprises are too risky, the government will bail out”.
Song Houze said that the authorities’ current stimulus plan is simply an attempt to “muddle through”, but such uncertainty and declining real estate problems will continue to affect consumer and business confidence and economic growth.
In addition, the strict zero-clearing policy and the real estate bubble have also suppressed the consumer demand of the people. Dexter Roberts, senior fellow at the Atlantic Council’s Asian Security Initiative, wrote on The China Project website that as long as Chinese consumers fear they are locked in their homes due to the zero policy, they are looking at their houses Keep depreciating and they’ll just keep sitting there and not spending.
According to a study by Southwestern University of Finance and Economics in Chengdu, for every 10% increase in the value of housing in China, the country’s overall consumption will increase by about 3%, and vice versa.
Another headwind to China’s economic slowdown is the draconian zero-clearing policy, which has seen indefinite lockdowns in major cities, halting the vast majority of production activities, confining residents to their homes and undergoing repeated nucleic acid tests, the report said.
“Consumers will continue to face repeated COVID-19 restrictions as long as the zero policy remains in place,” Ernan Cui, an analyst at economic research firm Gavekal Dragonomics, said in an August report. many uncertainties.”
The report quoted an editorial in the Wall Street Journal in August that the current state of the Chinese economy is the result of high-level CCP policies. Under Xi Jinping’s dynamic zero-clearing policy, unpredictable large-scale blockades will continue to sweep across the country, causing fluctuations in consumer confidence and production activities.
China is the world’s second largest economy with an excellent economic performance and its economic growth rate ranks among the top among the world’s major economies. However, a research report from the United States shatters the illusion of a beautiful Chinese economy.
A researcher from an American think tank said that the outside world has always had illusory envy for the economic policies formulated by the CCP, but in fact it was just that “the king has no clothes.”
The US “Market Watch” (Market Watch) website published an article on the 10th, discussing the serious problems in China’s economy from various perspectives in China, including the end of the growth miracle, the real estate bubble, and the COVID-19 reset policy.
Chinese leader Xi Jinping is expected to usher in a third five-year term. Figure: Retrieved from CCTV (file photo)