Storm clouds are brewing over China’s indebted and bloated property sector
Sluggish property sales have been arising fear among banks in recent years and rendered them more cautious about lending to both developers and investors.
Official data in January revealed that new home prices fell over the past couple of months, with 65 of the 70 major Chinese cities tracked by the government showing weakness. Even in Beijing and Shanghai new home prices were reported as having dropped by about 1 %. With new office and residential building still standing empty in many cities, China’s property market is in a precarious situation. To make matters worse, much of the construction was funded through loans or credits from local governments, which now face huge levels of debts.
Many experts concur that the property market depicts one of the main risk to China’s economy. Given its sheer size – the sector accounts for roughly 30 % of China’s economy and is the source of millions of jobs – any downturn will lead to a plunge in growth.
The ailing property market, slowing foreign investment and fewer exports due to the weak global economy represent only some of the numerous challenges that China is facing at the moment. They might somehow explain, however, why the world’s second-largest economy missed the government’s annual growth target for the first time since 1990.
Beijing now has the unenvied task of achieving more sustainable growth that is, on the one hand, less reliant on investment and credit, and, on the other hand, high enough to ensure new jobs are created and unemployment is kept low.
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