China Real Estate Crash | Is it the end of China ? | China’s largest real estate developer report loss of $7.6 billion |
China's economic Crisis explained
After couple of decades of China’s economic growth, we can now see that China has found itself in deep economic crises. These economic crisis will not only affect China’s economy but will also have its effects in international economy as well. If you think it will not affect you, then you are wrong as it will surely affect you and your family, sooner rather then later.
In this article, we will discuss about the root cause of China’s economic crash and examine the problems that China is currently dealing with. We will also do deep dive into economic problem such as China’s crashing Real estate market to social problems like youth employment, fleeing investors and much more.
Table of Contents
China's economic Growth : Uptrend Story
Over past Three decades of China’s rapid economic growth and International domination has helped China to enjoy the status of world superpower. The backbone of its prosperity was majorly due to unsustainable practices and economical policies.
USA’s assistance and heavy reliance on import from China has also played a crucial role in China;s economic growth. China also enjoyed the same due to America’s rivalry with Soviet Russia and its indirect assistance to China.
USA-China trade has increased from 116,200 Million US Dollars in 2000 to 690,000 Million Dollars in 2022 which shows the level of dependency China enjoy even when relation between both the countries are at the all time Low.
Fall of China Starts : China's Real estate Crash
China had made multiple desperate attempts to cover its economic crash and downfall of its real estate sectors but have failed to do so, as real estate crash in China is now exposed to the world and American thinktanks has expressed concerns over china’s real estate crash.
This crash has the potential to send meltdown to China’s economy and may cause political instability.
China’s largest banks are already facing the heat as their valuations are now hitting record low of just 0.38 times their book value in leu of upcoming unexpected events.
Investors are expecting to report slower growth rate and negative earnings.
Pre-Sale Scams and Protests in China
One of the most important factor causing China real estate crisis is that, as per official records almost 85% of the homes in China are sold before their construction.
This means, people start paying their mortgage payments even before getting possession of their homes and many have faced issue where the construction of building is abandoned, still they are forced to make their mortgage payments to banks.
This practice has led to wide protests within Chinese people when they realize that their homes would never be constructed and this caused mass unrest in Chinese economy
China's dependency on Real Estate
For more then Decades, China’s economy is highly dependent on booming Real estate. This growth in real estate sector has helped china’s economy by creating a large amount of jobs and service opportunities and served as the best place to store the wealth for china’s middle class population.
China's Real Estate Contribution to GDP
In China, Real Estate sector contributes to around 30% of overall GPD which is very high dependency of a nation on one sector. For context, in United States Real estate contributes to around 17% of the GDP for the nation.
This over reliance only on one sector makes China’s economy highly vulnerable to economic meltdown which will affect the whole country’s economy.
To conclude, 90% of China’s population do own their Homes whereas only 7% of the population owns stocks. These heavy exposure in real estate sector has exposed large population of china to upcoming real estate crises.
China's Unique Cultural and Demographic influence
China had introduced One Child policy in the year 1980 to counter mass increasing population. However this was later abolished in the year 2016 as it had negatively affected china’s demographic situation.
Due to above policy, China witnessed gender imbalance and saw huge increase in Male population in comparison to Female population. As per latest records published by Chinese government, China’s sex ration is 104.61 to 100 ( Which means, there are 104.61 Males per 100 Females )
With surplus in men population, owning property soon became a mandatory requirement to get married in many cases. As there are more men then women, women and their guardian only considered men with their own property, which further increased exposure to real estate sector contributing to real estate bubble.
In China, owning pre owned property is considered as inheriting the previous owner’s bad luck. This cultural mindset caused pre owned property demand to vanish, leading to more vacant properties in circulation with no actual demand for the same.
China unique Property laws
A unique aspect of China’s real-estate sector is their unique land ownership laws. In China, individuals do not own the land they bought, but they take the land on lease from Chinese government. People usually lease land from government for a period from 20 to 70 years.
This law resulted in speculators being interested in the real estate sector. This caused quick turnover of the property, which means properties were bought and sold in a rapid manner. This caused high supply of properties in Chinese real estate market.
China's Unemployment Crisis
China’s economy is currently witnessing transition from its historical Manufacturing based economy to the one focused on technology and services economy.
Due to such technological advancement and innovation the youths are facing challenges to get jobs.
The unemployment raise if rising amount Chinese youths, particularly among individuals aged 15 to 25. Youth population are facing difficulties to secure employment which are in sync with their education and qualifications.
This caused heavy competition among the population to secure employment which is major concern to policy makers in China.
Deflation
When the world is experiencing recession, China is currently experiencing deflationary conditions. Due to high unemployment and unpredictable future about source of income , consumer’s confidence in the economy is degrading and they have reduced their spending on non essential goods and services. These reduced spending has affected negatively to the businesses and affected profit margins of the same. This has sparked fuel to unemployment and lowered the prices of various commodities and services.
This trend has caused deflationary situation in Chinese economy and affected countries imports and well as exports.
China’s backbone, which is Export sector has seen a considerable drop of 8.8% in the Month of August, 2023. This decline is majorly due to Global recessionary estimates and negative sentiments about China.
World’s biggest millionaire outrun
One of the biggest negative factor that is affecting China’s economy is their millionaire running away from their country. Majority of the rich individuals are running away from China in search of better opportunities and a politically and economically stable nation. It is a big driver for investor’s loss of confidence in Chinese economy.
China has seen biggest ever outflow of millionaires globally in 2023 as nation witnesses economical slowdown. As per estimates from report, a record number of 10,000 High Net worth individuals have left China in the year 2022.
Conclusion
In Summary of above article, it is safe to say that China’s unstoppable economy and historical growth has revealed itself to be just another halo mirage built on unsustainable practices and economical policies. Even though we have witnessed great run by Chinese economy in past decade, the period of the next five year plan may prove a pivotal decision by decision makers for the Chinese economy.
The breakdown of Real estate crises, Youth unemployment, Deflation and Millionaire outrun are all the symptoms of upcoming great depression that threatens to reshape China’s future and along with it will affect Global economic landscape. Thinktanks from all around the world have their eyes on ongoing development in Chinese economies and its ripple effects on Global economy.
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