2/9
What is more, the sector has been adding new apartments to the economy at a rate that exceeds by 20-30%, and probably more, the country's actual housing needs.
But it's important to understand why Beijing will do all it can to slow the pace of its contraction.
What is more, the sector has been adding new apartments to the economy at a rate that exceeds by 20-30%, and probably more, the country's actual housing needs.
But it's important to understand why Beijing will do all it can to slow the pace of its contraction.
3/9
It is precisely because the sector was allowed to become so important in driving the economy that unless any meaningful contraction is balanced by growth elsewhere, the consequence will be a sharp, self-reinforcing contraction in the economy.
It is precisely because the sector was allowed to become so important in driving the economy that unless any meaningful contraction is balanced by growth elsewhere, the consequence will be a sharp, self-reinforcing contraction in the economy.
4/9
What can balance it? The most common answer is investment in the tech sector, but this is silly. Even if much of the additional investment in the tech sector were productive (i.e. generated more in economic value than it cost), the sector is too small to replace property.
What can balance it? The most common answer is investment in the tech sector, but this is silly. Even if much of the additional investment in the tech sector were productive (i.e. generated more in economic value than it cost), the sector is too small to replace property.
5/9
Ideally a surge in consumption could balance declining investment in the property sector, but after 15 years of promises, it is safe to assume that this will continue to be difficult. Ditto for productive private sector investment, which tends to be driven by consumption.
Ideally a surge in consumption could balance declining investment in the property sector, but after 15 years of promises, it is safe to assume that this will continue to be difficult. Ditto for productive private sector investment, which tends to be driven by consumption.
6/9
In theory a rising trade surplus could balance declining property investment, but China is too big for the world to be able to absorb the Chinese trade surpluses that this would require.
carnegieendowment.org
In theory a rising trade surplus could balance declining property investment, but China is too big for the world to be able to absorb the Chinese trade surpluses that this would require.
carnegieendowment.org
7/9
This leaves public-sector investment in yet more infrastructure, but by now Beijing recognizes that this just means replacing one kind of non-productive investment with another. Either requires the same surge in the debt burden that Beijing wants urgently to restrain.
This leaves public-sector investment in yet more infrastructure, but by now Beijing recognizes that this just means replacing one kind of non-productive investment with another. Either requires the same surge in the debt burden that Beijing wants urgently to restrain.
8/9
That is why if it wants to maintain high high enough growth in economic activity to satisfy political and employment needs, Beijing cannot allow enough of a property-sector contraction to clean up the mess too quickly. It must try to stretch out the process.
That is why if it wants to maintain high high enough growth in economic activity to satisfy political and employment needs, Beijing cannot allow enough of a property-sector contraction to clean up the mess too quickly. It must try to stretch out the process.
9/9
Of course that won't be easy. If there has been a permanent change in household expectations of the direction of real estate prices, it will be extremely hard to revive the household buying needed to slow the real estate contraction.
Of course that won't be easy. If there has been a permanent change in household expectations of the direction of real estate prices, it will be extremely hard to revive the household buying needed to slow the real estate contraction.
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