I rang in the new year with a quick trip to Beijing for a few speeches and media appearances. It was an interesting time, given concerns over the trade war with the United States and the Chinese government’s efforts to manage a slowing economy.
From reading most Western media, you might think all of the economic slowdown was the fault of the trade war. Only a few Western commentators “get” that China’s slowdown is the result of sensible, deliberate policies designed to slowly let the air out of credit bubbles instead of pumping them bigger until they pop.
China’s economic team rightly has sought to slow down borrowing, keep financial bubbles from getting bigger, and bring the shadow economy into the light -issues it highlighted as highly obvious but neglected “gray rhino” risks in a front-page editorial in People’s Daily back in July 2017. Now it’s focused on managing the side effects of those initiatives.
Many observers in China believe that anti-financial risk measures had hit small and medium businesses harder than they had giant state-owned enterprises. So China’s government recently adjusted bank reserve requirements to try to direct more money into the “real economy,” particularly businesses that had been feeling pinched.
China’s property market has been getting a lot of attention in the Western media, including The New York Times. It’s being talked about even more in China (as you might expect!) Participating in a panel at the Netease Impact Summit, I was amazed –as I got the sense the audience was too– at how lively the debate got over the property market and possible measures to manage it.
Luckily the moderator, fellow Young Global Leader Tian Wei, the anchor of World Insight, showed great skill in managing the conversation!
But the property market is actually two gray rhinos for different reasons: one involves the people who bought real estate, and the other involves the people who didn’t because they don’t have the resources.
Most of the attention has been focused on falling prices and how that will affect people who have bought homes. Big-volume speculators are angry, too, but I often comment in China about the importance of avoiding the mistake the United States made: helping the big guys when real estate prices fell but not providing enough support to the rest of the country hurt by the consequences of the subprime crisis.
The other real estate gray rhino, which hasn’t been getting as much attention, is that more and more people can’t afford to live in the big cities, a reality that in turn affects both workforce dynamics and demand for different types of homes. The weakening of real estate prices will actually help with that one.
In most economic booms, we don’t pay enough attention to housing affordability and its knock-on effects. Affordability isn’t a problem for China alone, nor is it unique in feeling the pain of falling real estate prices.
It’s just dealing with market weakness before most other countries are because it’s been trying to let the air out of its financial bubbles instead of letting them grow bigger so that they do even more damage when they burst.
The trade war and the uncertainty it has caused certainly doesn’t help China’s economy. But it’s a mistake to view it as the main reason for China’s sagging real estate market. And it’s folly to assume the rest of the world won’t be facing similar challenges soon.
#China #realestate #globaleconomy #housing #tradewar
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