“Because China is now the No. 1 commodity consumer in the world, the impact [of the debt crisis] is going to be pretty, pretty big” -Larry Hu, Hong Kong based chief China economist for Macquarie (Goodman).
China’s track of economic growth and prosperity has benefited its citizens in recent years, but now it’s falling to an ultimate low. Every thriving economy needs diverse and high-paying jobs, demand from consumers, and restrained regulation. For decades, China’s economy relied on the flourishing real estate market to furnish an exemplary economy by creating jobs that will provide youth the ability to thrive through life. Now, China faces massive losses and debt from missed bank payments, creating a dent in the economy. A major surplus in unoccupied real estate due to unregulated lending (no government intervention) to major real estate companies, and unemployment in the wake of the COVID-19 crisis threatens, severely accelerates China’s economic recession and decline.
Before economic discontent began in the present day, the history of China’s real estate market began in the 1980’s, when it became an open market (an unrestricted market with free access by and competition of buyers and sellers.). China’s previous public housing system included rental or state-owned land (Real estate law). In April of 1980, Chairman Deng Xiaoping introduced reforms that allowed individuals to purchase homes (People’s Bank of China). Since living spaces were provided to citizens in China, housing was seen as an essential right. Because of the economic shift towards privatized housing, moving from government ownership to private individual ownership, and the massive increase in apartment complexes, real estate is now viewed as an investment or even a luxury. Today it is estimated that 51.5% of investment in fixed assets came from real estate and up to 70% of household wealth is in property (What’s happening). The first main reason for the real estate crisis is because two major real estate companies, Evergrande and Country Garden, are borrowing money at high rates while not paying back their outstanding loans, causing deeper political and social issues. The crisis stems from the government’s leniency on borrowing. Almost 40% of bank loans in China are related to property, highlighting how much the economy depends on real estate (Bradsher). Evergrande is the world’s most indebted developer, and this is taking a huge toll on the Chinese economy as government-controlled banks are losing money from loans. Meanwhile, China has so much empty housing that the present population cannot fill the housing surplus. Population growth fueled the real estate market’s growth in past decades, but with employment rates dropping because of strict COVID-19 regulations, fewer people are financially stable and able to buy homes. In this destabilized housing industry, companies like Evergrande and Country Garden are left unable to pay their debts.
Secondly, “Zero-COVID” policies have forced everyone in the country to be locked at home and without jobs, resulting in more salary-cuts and layoffs. China’s Research Center wrote, “The COVID-19 pandemic caused declining consumption, production, and all economic activities, resulting in lower economic growth in China…” due to strict public health measures (Dr. Haizheng Li). Students were not prepared to come out of these strict COVID-19 policies and find jobs. COVID-19 also furthered the housing crisis because everyone was living at home. This resulted in students not wanting to move out, especially when everything was paid for by their parents. In China, the youth unemployment rate has also not allowed students to buy homes, currently, people ages 16 to 24 have reached a record of unemployment at 21.3% (Mistreanu). Relying on family members for survival and restricted by pandemic policies, students and young professionals face uncertain financial futures. COVID-19’s impact on unemployment defined the future of the real estate market as the entire system of consumer and supplier fails to accommodate for the lack of demand.
In the end, the real estate market is not going to fix itself without the cooperation between the Chinese government, the companies, and the citizens. The government has an obligation to require limits on borrowing to prevent the risk of the real estate market dropping even lower. If China’s economy continues like this for the next few years, homelessness and poverty will also result in an all time high, inflation will keep rising, and citizens will really be tremendously dissatisfied. Even though the government is at fault for many issues pertaining to people’s inability to buy houses, companies are also at fault due to their careless borrowing and excessive building practices. Government negligence and company carelessness have combined to result in an overwhelming surplus of houses with few people economically capable of occupying them. Solutions such as limiting money borrowing will help resolve this crisis. China’s housing crisis has revealed how no market can ever stay prosperous without collaboration.
Goodman, Peter S. “China’s Stalling Economy Puts the World on Notice.” The New York Times, 11 Aug. 2023, Source.
“Real Estate Law: China: Global Corporate Real Estate Guide: Baker Mckenzie Resource Hub.” Home, Accessed 25 Nov. 2023, Source.
“The PBOC Props up China’s Housing Market.” Council on Foreign Relations, Source Accessed 25 Nov. 2023.
“What’s Happening in China’s Property Market? An Explainer.” China Briefing News, 20 July 2022, Source.
Bradsher, Keith. “How China’s Property Crisis Is Testing Its Too-Big-to-Fail Banks.” The New York Times, 30 Sept. 2023, Source.
Dr. Haizheng Li, Xiangyuan Li. “The COVID-19 Pandemic’s Impact on the Chinese Economy.” China Research Center, 4 May 2023, Source.
Mistreanu, Simina. “China’s ‘full-Time Children’ Move Back in with Parents and Take on Chores as Good Jobs Grow Scarce.” AP News, 14 Sept. 2023, Source.
The Butterfly Effect