China May Be Headed for a Lost Decade.
The apparent failure of the Chinese economy to regain its past rapid economic growth path following the ending of the Covid restrictions should have come as no surprise to those who had been paying attention to the bursting of the Chinese housing and credit market bubbles. This is especially the case considering that those bubbles exceeded the size of those that preceded Japan’s lost economic decade in the 1990s and that preceded the U.S. recession of 2007-2009.
Chinese non-public-sector credit has increased by more than a staggering 100% of gross domestic product since 2008, according to the Bank of International Settlements, since 2008. Meanwhile, housing prices in relation to incomes in a number of major Chinese cities increased to levels exceeding those in London and New York, a study by Harvard’s Kenneth Rogoff found.
Anyone doubting that the Chinese housing and credit market bubble has burst need only recall that last year Evergrande, along with 20 other Chinese property market developers, defaulted on its debt. They also might take note of the fact that Chinese housing prices have declined in each of the last 12 months and that a number of major local governments are now running into difficulties in repaying their debt as land sales have screeched to a halt.
This is all not to say that China is likely to experience a U.S.-style bust led by a housing and credit market collapse. Rather, it is to say that the Chinese government’s efforts to prop up the housing market and the ailing local governments will leave little credit available for the more productive sectors of its economy. That in turn threatens to usher in a lost Chinese economic decade a la Japan’s of the 1990s.
China can’t afford to lose a decade if they have any hope of beating the “grow old before they grow rich” prophecy.
h/t SG