China's property-market nosedive is nothing new. Construction has all but ceased. Sales are stagnant. Property developers can't pay their debts. Buildings sit empty or unfinished.
The Chinese government is making a last-ditch effort: buying unsold homes. Bankrolled by debt issuance, this initiative seeks to convert vacant buildings into affordable housing units.
China's property disaster raises questions about how effectively a government can manage an economy. China’s property bubble is largely attributable to state meddling, which induced mass, artificial growth in the housing and development sectors. Now, the state is trying to remedy a problem it helped create. Given China’s slight regard for long-term consequences from a policy-making standpoint, it will be interesting to see how debt funded property purchases will further impact China’s economy.
China's ailing property sector, in tandem with low consumer spending, has skewed China’s source of economic growth towards industrial production. This is shown in the chart below. Such "lopsided" economic growth is also aided by exports of factory-produced goods overseas at low prices.
China’s manufacturing crutch has direct implications for the United States. China’s cheap and heavily subsidized electric vehicles, for example, have become strategic concerns for the United States and Europe, as evidenced by recent Biden administration tariffs.
China’s property crisis, and its impact on the nation’s economic policies and sources of growth, should be monitored carefully.
Source: Jason Douglas, WSJ; Allison Schrager, The Spectator
Reade Ben is a policy analyst at the Manhattan Institute.
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