China has reached the end of its economic boom. What comes next should worry every American business — and the rest of the world.
China has reached the end of its economic boom. What comes next should worry every American business — and the rest of the world.
No amount of “control” will work to fix something that is inherently flawed at a systemic level. The fall of Evergrande Group was merely one high-profile case of the real estate sector’s general collapse. With Beijing’s crackdown on developers’ high reliance on debt for growth, the entire real estate market, and all the companies within it, have been suffering. However, the Chinese government has been trying to resolve the crisis, having set up a financial stability fund through which it raised $9.6 billion in the first round of fundraising.
Assume you can prop up their real-estate sector long enough, which at this juncture is akin to a federal department, and you still have to look at the reality of the real estate itself. The only value in Chinese real estate comes from the volume and location of the plot. Chinese construction teams build with the cheapest materials, regularly to the detriment of the building’s ability to last. While some have touted China’s “disposable cities”, the fact is that they are collapsing on their own and ahead of schedule. The buildings are inherently worthless and trust in the companies that construct them are at an all time low in conjunction with the real estate planning and development groups, leading to a brewing economic crisis.
In addition, China is employing other stopgap measures that indicate a failing economy including massive currency buybacks utilizing agents to inflate the value of their yuan. However, they are not taking meaningful measures to secure the economy in the long term to my knowledge.
Funny how you considered it fundamentally flawed for having problems after 40 years of continuous growth, when we in the west have regular “corrections” generally every 10 years. Some of them major like the .com bubble and the financial crisis.
How exactly do you measure that for an economy that has increased about 50 fold over 40 years? Obviously the growth in that sector would be enormous compared to anything previously seen. Yes it may have heated too much, but avoiding any serious turbulence for as long as they have, is still impressive by any standard.
They may experience a few years of turbulence now, probably because they never expected the decline resulting from COVID. But it’s way to early to tell how they will manage. China probably has one of the most self sufficient economies in the world, I think that will make them less vulnerable than most countries.
This guy thinks an economy correcting itself is a bad thing