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The headquarters of the People's Bank of China is pictured behind an iron chain in Beijing.
Will China’s property woes get political?
As China’s financial troubles mount, analysts forecast stormy skies for its economy — and potentially, its politics.
Much of the turmoil centers on the country’s real estate sector, which has traditionally driven up to 25% of its economic growth. Last Friday, property development giant China Evergrande Group filed for bankruptcy in the US after two years of restructuring. The same day, Hong Kong’s Hang Seng Index announced that it would be dropping Country Garden Holdings, the country’s largest property developer, from its listing as of Sept. 4. Earlier this month, Country Garden missed a deadline to pay $22.5 million in loan interest and is described as “teetering on the edge of default.”
There have been several attempts to right the nation’s economic ship in recent days. China’s securities regulator announced a series of reforms to boost investment in its capital markets. Its Ministry of Public Security announced a relaxation of internal migration rules to combat urban labor shortages. And the People’s Bank of China attempted to shore up the renminbi by injecting Rmb757 billion ($104bn) of short-term liquidity into China’s banking system and cutting medium-term financing rates.
Household consumption — so low that there are fears of deflation — makes up only about 38% of GDP in China, compared with around 68% in the US, so increased consumer spending is an obvious choice for spurring economic growth. On Monday, the bank modestly cut one-year and five-year loan prime rates to make it easier for businesses and households to borrow money and boost consumer spending.
Why this matters: Apart from risks to both China’s and the world’s economy, there is concern that worsening economic prospects could incite the Chinese government to ramp up repression at home and aggression aboard. Former Special Assistant to the US Secretary of Defense Hal Brands warned that "China may act more aggressively in the near term — as its military capabilities mature — to lock in gains while it still has the chance." And President Joe Biden opined earlier this month that China’s economic woes present a “ticking time bomb” which could lead its leadership to “do bad things.”
Topping that list? Military action against Taiwan. China’s latest show of force in the region saw 42 warplanes and eight vessels dispatched to the South China Sea after Taiwanese Vice President William Lai stopped over in the United States en route to Paraguay.
Such a demonstration may be as much for domestic as external consumption to assert Xi Jinping’s authority and quell the grumbling of Chinese citizens, some of whom are angrily asserting their rights as their property investments tank. A whopping 90% of China’s households are homeowners, and most household debt is in the form of mortgages. That debt hit 63.5% of GDP in the second quarter of 2023, so if the country has its own Lehman Brothers moment, it could make the 2008-09 financial crisis look quaint by comparison.U.S. President Joe Biden delivers remarks on voting rights during a speech on the grounds of Morehouse College and Clark Atlanta University in Atlanta, Georgia, U.S., January 11, 2022.
Hard Numbers: Biden ditches filibuster, Afghan aid, global economic slump, Chinese lockdowns
60: After sending mixed signals during his campaign and in office, US President Joe Biden now wants to get rid of the Senate filibuster in order to pass voting rights legislation. The current rule allows the minority to block any law that doesn’t have the 60 votes needed to end debate in the 100-member upper chamber of the US Congress.
5 billion: In its largest-ever country appeal, the UN says it needs $5 billion from donors to avert a humanitarian catastrophe this year in Afghanistan. Afghans face dire conditions this winter, including a risk of famine for up to one-third of the population.
4.1: The World Bank expects the global economy to grow by just 4.1 percent this year, 1.1 percentage points less than in 2021, amid a pandemic-related slowdown that will hit developing countries the hardest. COVID variants, inflation, supply-chain woes, and less government stimulus are to blame.
20 million: Some 20 million people are now under COVID lockdown in China. Anyang in Henan province became the third Chinese urban center to quarantine all its residents after detecting a couple of omicron infections, upping the pressure on China's zero-COVID policy less than a month from the Beijing Winter Olympics.