Authorities didn't want to change the way local governments funded themselves or allow Chinese household finances to crumble, so they could not let prices fall. But because real estate played such a vital role as a government-funding mechanism, China had to keep building, despite these troubles. Worried that the sector would implode, Beijing attempted on multiple occasions to limit the credit that was fueling the bubble. In Shenyang, farmers have taken over a development of empty mansions for cattle grazing. Many of the mega-developments became empty monuments to Beijing's insatiable desire for growth. China has a population of 1.4 billion, but it has built housing for a population of 3 billion, according to expert estimates. It's been clear for years that the Chinese real-estate market has been in trouble. This is where you'll find China's infamous ghost cities. Property firms did the most building in third-tier cities where people aren't as wealthy. Cities like Shanghai and Beijing get a lot of attention, but they make up just a fraction of the property market. Instead of property taxes, municipalities sell large swaths of land to property developers and then use the revenue for basic social services like fixing roads and paying out pensions. Not only is it the biggest source of wealth for Chinese households, real estate is also the mechanism through which local governments are financed. Let's start with the country's real-estate market, the importance of which cannot be overstated. Instead, it looks like the economy is falling behind. Beijing's story so far has been to claim that, like other economies on the mend from the pandemic, China will in time resume its normal growth pattern. The Chinese economy has been bending under the weight of its structural problems for almost a decade now, but since the end of Xi's COVID-lockdown policy, it's become clear that its growth model is well and truly broken. For the rest of us, it's a more precarious world. For policymakers, it means a China that is harder to mollify when conflicts arise. For everyone from American farmers to pharmaceutical companies, this means shrinking demand and unstable supply chains. In response, American businesses need to consider how else Beijing's decision-making may now be flipped on its axis. "This isn't about the economy anymore, it's all about advanced technology and weaponry," Lee Miller, the founder of the Chinese economic surveyor China Beige Book, told me. Beijing's relationship with the outside world is no longer guided by the principles of economic rationality, but rather by its yearning for political power. Nor will the explosive growth that experts once expected from China return. There's no hefty stimulus coming this time. In the past, whenever it seemed that a recession was on the horizon, the CCP came to the rescue. As a result, both the government's priorities and its behavior have changed. Getting rich isn't China's big project anymore the project is power. Even American companies saw China as the next great global market - and made bets accordingly.Ĭhina's leader, Xi Jinping, has shifted the CCP's raison d'être to national security over the economy. Countries relied on China's hunger for speedy modernization and industrial might to supercharge their own development. This era of expansion was not only a boon for Beijing, it also helped fuel global demand. There was no time to stop for corrections while China's mind was on money alone. The Chinese Communist Party relentlessly pursued economic development over all else, even when that single-mindedness pushed the party to make debilitating policy mistakes - creating a massive bubble in the property market, saddling provinces with loads of debt, and failing to transition away from an overreliance on investment. We've reached the end of an era for the Chinese economy.įor the past three decades, China has been on the upswing of a supercycle that saw an almost uninterrupted expansion of the country's capacity to manufacture, appetite to consume, and ability to project power across the world economy. Account icon An icon in the shape of a person's head and shoulders.
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