China’s Economic Crash Looms: Real Estate, Infrastructure Fail, Debt Exceeds 90% of GDP, Xi Helpless

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China’s real estate crisis deepens, property investment down 10%, home prices plummet, local gov’t debt soars.

According to 2022 data from the International Monetary Fund, China’s local government debt had already reached 92 trillion RMB, accounting for 76% of GDP.

Economic expert Dr. Cheng Xiaonong wrote in Radio Free Asia on February 27, 2023, that the total debt of China’s central and local governments is as high as 110 trillion RMB, equivalent to 91% of GDP, far exceeding the internationally recognized warning line of 60%.

Dr. Cheng believes that local governments in China are “unlikely to repay their debts.” He warned that if the massive debt problem is not resolved, China will face a comprehensive and extremely severe economic disaster.

Thus, both of China’s major investment fields—real estate and infrastructure—are in decline.

The economy of China continues to grapple with its property crisis

Over more than a couple of years now I have been expressing my concerns over the property sector in China. It even has a local component via the ownership of a couple of towers at the Vauxhall end of Nine Elms. So this morning’s release is another link in the chain.

BEIJING, June 17 (Xinhua) — Major Chinese cities saw falling home prices in May, official data showed on Monday.

The National Bureau of Statistics (NBS) said that 70 large and medium-sized cities recorded month-on-month declines in both new and second-hand home prices.

In first-tier cities, namely Beijing, Shanghai, Guangzhou and Shenzhen, new home prices edged down by 0.7 percent. Meanwhile, second and third-tier cities registered declines of 0.7 percent and 0.8 percent, respectively.

Prices of second-hand homes fell by 1.2 percent in first-tier cities, 1 percent in second-tier cities, and 0.9 percent in third-tier cities, the NBS said.

Those monthly falls meant that the annual rate of decline accelerated to 3.9% which is the fastest rate of fall since 2015. This matters because the previous boom in the sector required ever higher prices to encourage people to believe that they would keep making money. If you like it was another form of FOMO or Fear Of Missing Out. So the bubble will have started to deflate the moment prices stopped rising and falls just take even more air out of it.

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There is always the issue in such a controlled economy of how realistic are these figures? Bloomberg pointed out this last August.

New-home prices have slipped just 2.4% from a high in August 2021, government figures show, while those for existing homes have dropped 6%……..But the picture emerging from property agents and private data providers is far more dire.These figures show existing-home prices falling at least 15% in prime neighborhoods of major metropolitan areas like Shanghai and Shenzhen, as well as in more than half of China’s tier-2 and tier-3 cities.

As someone who is going to give evidence to the UK Office for Statistics Regulation later on housing (rents) methodology this bit from Bloomberg raised a smile.

China’s official home-price indexes are likely understating the depth of the downturn, in part because of longstanding methodologies that struggle to capture market turning points.

The significance of this beyond the sector itself is that it had become up to 30% of economic growth. This means that it will be making an existing problem worse. From this morning.

China NBS spokeswoman Liu: The effective domestic demand is insufficient. (CN Wire)

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