Daily Management Review

What The Global Economy May Expect From China's Slow-Motion Real Estate Catastrophe


What The Global Economy May Expect From China's Slow-Motion Real Estate Catastrophe
China's real estate business is slowly imploding.
Major developers such as Evergrande and Country Garden are still mired in debt. 'Ghost cities' dot the Chinese countryside. And now, the International Monetary Fund has lowered its global growth predictions for 2024, citing China's real estate crisis as a major reason.
″It’s important to recognize that there is a longer-term challenge here, and that is we essentially have too large a construction sector in China, we have too large a real estate sector because underlying demand for apartments is declining,” said Frederic Neumann, HSBC chief Asia economist, in an interview with CNBC. “We have slowing urbanization. We have declining demographics.”
China's overall economic recovery following the pandemic has been less than remarkable. Youth unemployment is at an all-time high, GDP predictions have been slashed, and the protracted real estate crisis has harmed consumer confidence and foreign investment in the country.
Beijing is now working to alleviate the sector's stress by enacting legislative changes such as decreasing minimum down payments and enabling mortgage rates to be adjusted. However, the global economic fallout might generate headwinds for years to come, according to Neumann.
“China’s shrinking real estate sector over the coming years will really have a huge impact on heavy industry, on the commodity markets globally,” he said. “There’s going to be less steel demand. There’s going to be less cement being used — less glass, for example. That impacts within China heavy industrial areas that really produce these raw materials.”