The past six months have brought bad news for China’s economy: China faces sluggish growth, record levels of youth unemployment, low foreign investment, weak exports and currency, and a crisis in the real estate sector.
US President Joe Biden has likened the uncertain situation of the world’s second largest economy to a ‘ticking time bomb’ or a bomb that can explode at any time.
However, Chinese President Xi Jinping responded to the US President’s statement about the country’s economy by saying that “China’s economy” is strong, has a great ability to face all kinds of challenges and is moving forward in an energetic manner. Has the ability.’
So who is right among these two great leaders, President Biden or President Xi? Here too the case is the same as it has often been seen that the answer to this question may be somewhere in the air.
While it is highly unlikely that the economy will collapse or any major process destabilizes it, it is certain that China is currently facing some large-scale economic challenges.
At the heart of China’s economic problems is its real estate market. Until recently, real estate was the backbone of the Chinese economy as it accounted for one-third of the country’s total wealth.
Professor Antonio Fatas, an economist from INSEAD, a business school in Singapore, says, “This is completely meaningless, which does not make any sense.”
For two decades, the sector boomed as it fostered a privatization process. But the time of 2020 when the Corona epidemic affected the whole world and the real estate industry started shrinking in China too, due to which this sector may not have recovered till now.
The Chinese government, fearing a US-style economic crisis in 2008, set a cap on how much debt developers could borrow. Soon they were saddled with billions of debt which they were unable to clear.
Demand for housing fell sharply and property prices also suffered a decline.
“In China, property is your best source of savings,” according to Alicia Garcia-Herrero, chief Asia economist at wealth management firm Natixis.
“Recently, it’s a better practice than putting your money in an uncertain situation in the stock market or a low-interest bank account,” he says.
This means that, unlike Western countries, there is no post-pandemic spending boom or any major economic crisis.
García Herrero said, “It was thought that the Chinese people would go a long way in using or spending their money after the Corona epidemic.”
According to him, ‘They (Chinese people) will travel the world, they will go to Paris, and they will also see the Eiffel Tower, but in fact they knew that the country’s economy and the increase in the prices of goods there could prove to be a burden on them. So they have decided to save whatever cash they have for the tough times ahead.’
According to some economists, it will take years to get out of the current situation and conditions of the property.
A flawed economic model
A glimpse of the problems with China’s economic initiatives and the way it operates is also evident in the property sector.
Over the past 30 years, the country has grown dramatically and managed the economy, with everything from roads, connecting bridges and railway lines to factories, airports and housing.
However, some economists argue that this approach is being seen both figuratively and literally.
Another strange example of Chinese construction can be found in Yunnan province near the Myanmar border. Where the authorities have surprisingly confirmed that they are going to build a quarantine center with the help of millions of dollars where a large number of corona patients can be kept if needed.
The bottom line is that China can do more to prevent money wastage. The country needs to find another way to create prosperity for its people.
“We are at a critical juncture,” says Professor Fatas, “the old model is not working, but you need serious organizational and institutional reforms to change the mindset.”
For example, Professor Fattas argues that ‘if China wants a financial sector to accelerate its economy and compete with the US or Europe, the government will first need to loosen regulation substantially. .’
But in reality the opposite has happened. The Chinese government has tightened its grip on the finance sector, stepped up pressure on ‘western’ bankers and cracked down on tech giants like Alibaba.
In July, the data showed that the jobseeker rate among 16- to 25-year-olds was 21.3 percent. However, the authorities have since announced that they will stop publishing the data.
According to Professor Fatas, “This shows the rigidity in the central economy system due to which, despite the presence of a large number of youth, they have not been able to be part of the system or are facing difficulties in this process.”
Although, this is speculation at this point. China has come out of all the crises in the past. But there is no doubt that the country’s leadership now faces a unique challenge.
Are they worried about the current situation? Of course, they are concerned because they keep an eye on it. He further says that ‘Does he (President Xi) understand what needs to be done in this situation?’
“I’m not sure, but I guess they’re missing something that’s fundamental and very important to China’s future,” he says.
Note; Shafaqna do not endorse the views expressed in the article