Real estate, manufacturing and tech are the three pillars on which the dragon economy prospered to the present day. But those pillars may not last long.
The decreasing working-age population, increasing government regulation and energy-supply crisis in the Chinese manufacturing and tech world is hitting this sector hard.
The decreasing young population is depleting the intellectual and talent pool of the country.
The backup plan for the Chinese would be the real estate, but that side is bleak. Chinese real estate is the only investment option for the Chinese public. These properties are developed on land leased by the government.
The rent from these lands is a source of revenue. The buyers hold on to their new properties for a price hike that can be sold off at a profit. This real estate system led the Chinese to build ghost towns, from China to the nations that are part of BRI.
While this precarious system was being run with government intervention trying to rein in, the pandemic struck, striking a blow at the sector.
Then the Evergrande crisis came in raking up a storm in the economy, whose fallout may be far worse than anticipated.
The signs are already visible as new home prices fell for a second consecutive month. Mounting distress and property slowdown affect the economic outlook. The rates have fallen by 0.25 in major cities across China.
This measurement is made by the metric that was lowered in September. That shows rising tension on policymakers who have tried to limit debt but are confronted by liquidity issues from the sector.
The US Federal Reserve warned last week that this crisis could affect the US financial system to a certain extent, considering the behemoth size of this sector on the economy as a whole. This comes under the light of a 24% decline in residential sales in October.
Tommy Wu, an economist at Oxford Economics, said that the crisis might be weighing on the industry, but it is contained.
The reasons vary from low stock of unsold housing to urbanisation to income growth. That is evidenced, by the 3.4% price rise in a few cities.
The Evergrande crisis has spread over to other developers, which is a large portion of Asia’s high-yield bond market.
They are struggling to get access to new financing. Because of this, only state developers have bought land in major cities during recent months.
The authorities have presented measures constraining borrowings by the developers and also added caps on the mortgage. Last week the state media reports gave hints of easing these measures.
But they still fear the asset bubbles forming in the market.
But some analysts think that the concerns might be exaggerated, as there are signs of picking up in the sector. The data released on Monday shows that it rose 4.9% year on year.
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