China’s Lethargic Economy: Can Giant Neighbor Overcome ‘Real Estate Recession’?

Editorial

14:30 JST, October 30, 2023

China’s slow economic recovery is a source of concern for the global economy. A slump in the Chinese real estate sector — the main factor behind the country’s sluggish recovery — has no end in sight, and strong caution is necessary.

China’s inflation-adjusted real gross domestic product (GDP) for the July-September 2023 period grew 4.9% compared to the same period last year, while the growth rate shrank from 6.3% in the April-June 2023 period.

On a quarter-over-quarter basis — used as a key indicator by advanced economies — growth expanded 1.3% from the April-June period, representing an annualized growth rate of over 5%.

This is above the Chinese government’s annual growth target of “around 5%” for 2023, but as a recovery following the end of the zero-COVID policy that depressed the economy, it lacked vigor. Looking ahead, there is little room for optimism.

China’s real estate sector, which is estimated to account for 30% of its GDP, is in a serious slump, with investment in real estate development from January to September dropping by 9.1% from the same period last year. Major real estate development firms are having to deal with an ongoing series of business crises.

In China, real estate accounts for a noticeably higher percentage of household assets compared to the West, and when real estate prices fall, consumption slows.

However, the Chinese government has restricted real estate-related loans to prevent wealth disparities from widening, and Beijing is probably reluctant to take drastic measures such as bailing out real estate companies to buoy the sector.

The downturn in the real estate industry has spread to local government finances, too. Local governments in China sell land-use rights to real estate developers, using the proceeds as their main financial resource. The sluggish market has thus worsened their fiscal health, making it difficult to introduce large-scale economic stimulus measures.

In its latest economic outlook, the International Monetary Fund (IMF) revised its global growth forecast for 2024 downward. The slowdown in the Chinese economy is a major reason for the amendment.

With the eyes of the world focused on China’s economy, it is problematic that Beijing’s management of statistics is opaque.

Unemployment is high among young people in China. The jobless rate for people ages 16-24 stood at about 21% in June, the worst since the country began compiling statistics in 2018, and no figures have been released since July.

The Chinese government says this is to improve the accuracy of the statistics. However, many observers say Beijing is merely trying to avoid exposing the failure of its economic policies. In October last year, the country abruptly suspended the release of its GDP statistics for a while.

The U.S. government has been strongly urging China to improve the transparency of its statistics. If clarity is compromised, it will be difficult for companies outside China to make decisions regarding trade and investment. The Chinese government should be aware of the nation’s responsibilities as the world’s second-largest economy.

(From The Yomiuri Shimbun, Oct. 30, 2023)