Many Chinese Developers Halt Construction on Presold Homes
Demand Slump and Cash Flow Issues Take a Toll on China’s Real Estate Market
China’s real estate industry is experiencing significant setbacks as several developers halt or delay construction on presold homes. Cash flow problems and slumping demand have contributed to this challenging situation.
According to a report by China’s National Bureau of Statistics, the country’s manufacturing activity has contracted for the fourth consecutive month. This, together with other downbeat data, has sparked skepticism towards China’s economy.
Experts Revise Forecasts As Confidence Wanes
Allianz, a prominent financial services company, has reversed its optimistic outlook on China’s economy. It now expects Beijing’s economy to grow by an average of 3.9% between 2025 and 2029, down from the pre-pandemic forecast of 5%.
Eswar Prasad, an ex-International Monetary Fund official, has also expressed doubts about China’s economy. He argues that the likelihood of China’s GDP overtaking that of the U.S. is diminishing.
Mohamed El-Erian, a renowned economist and Allianz advisor, has highlighted the underperformance of China’s stock market in comparison to those in the U.S. and Europe. This divergence serves as another indication of China’s economic challenges.
Mixed Signals and Varying Perspectives
While Chinese leader Xi Jinping remains optimistic, stating that the nation’s economy has become more resilient and dynamic, other experts and indicators present a more pessimistic picture.
Factory activity in China expanded for a third consecutive month in January, and the luxury sector shows signs of recovery. However, these positive indicators haven’t convinced the bearish analysts.
Bearly China: Stagnation and Disappointment?
Economist Paul Krugman holds a bleak view of China’s future, stating that the country is entering an era of stagnation and disappointment. Contrary to expectations, China did not experience a post-“zero-Covid” boom.
From bad leadership to high youth unemployment, China faces challenges on multiple fronts. According to Krugman, these economic struggles may eventually have consequences beyond China’s borders.
Property Troubles Amplify Bearish Sentiments
Wall Street remains bearish on China, largely attributed to the country’s well-known property market troubles.
In a recent report, the International Monetary Fund (IMF) projected a 50% drop in housing demand in China over the next decade. IMF Chief, Kristalina Georgieva, has emphasized the need for fixing China’s real estate sector and implementing structural reforms to prevent growth rate declines.
The heavily indebted property market has also caused a wave of defaults among public developers. This situation raises concerns since China’s real estate market contributes significantly to the nation’s GDP.
Hedge fund manager Kyle Bass claims that China’s default-ridden property market is comparable to the U.S. financial crisis, suggesting that the Chinese economy is fundamentally flawed.
Differing Perspectives Amidst Complexity
Not everyone shares the pessimistic outlook on China’s economy. The Institute of International Finance believes that Beijing possesses the policy capacity to steer the country toward its growth potential. They maintain an above consensus forecast of 5% GDP growth in 2024 but acknowledge that demand-side stimulus is crucial.
Marko Papic, a partner and chief strategist at Clocktower Group, holds an optimistic short-term view on Chinese equities. He anticipates at least a 10% rally in China’s stocks in the coming days, based on signals of support from government officials.
JPMorgan Private Bank also highlights segments of the Chinese economy that have shown resilience, particularly in manufacturing, where demand for Chinese exports remains steady.
However, significant challenges lie ahead for China, and the efficacy of its response remains to be seen.
