Rows of half-empty residential towers and deserted streets in Tianjin (northern China) starkly illustrate the real estate crisis plaguing the Chinese economy.
Despite the lifting of health restrictions – which followed the outbreak of the Corona virus – more than a year and a half ago, the real estate market continues to hinder economic recovery in the second largest economy in the world.
Meanwhile, the credit market is showing signs of growth with increased government bond sales, providing a ray of hope amid these challenges.
The real estate sector is in decline
The real estate sector, which has historically contributed about a quarter of China’s gross domestic product, is facing serious problems amid the economic slowdown.
This has led to increasing numbers of unfinished construction projects and increased concerns about the financial stability of many real estate developers, including giants such as Evergrande, which are facing significant financial difficulties.
Wang Dongmei, a retiree in Tianjin, shared her personal experience with AFP, highlighting the impact on ordinary citizens.
She bought an apartment for 870,000 yuan ($120,000) in 2016, but its value has now decreased by more than 30%. Wang expressed her desire to sell, but market prices are “at their lowest levels in 10 years.”
Efforts to revive the sector have seen mixed results, and measures such as lowering the minimum down payment for first-time homebuyers and proposals to buy unoccupied homes have been implemented.
Zhao Xin, a real estate agent, noted some signs of market recovery due to these initiatives. But he warned that “it is unrealistic to say that we will return to the same high level of sales recorded previously.”
According to Fitch Ratings, new home prices are expected to decline further by 15% to 20% this year. Economic discussions will dominate the Communist Party’s Central Committee meeting next July, with a large focus on the real estate market and youth employment.
The job market is reeling
Youth unemployment has become a pressing issue, with President Xi Jinping calling it an “absolute priority” in a speech in May. Last year, youth unemployment rates reached record levels before the government stopped publishing these figures, citing the need to review data collection.
The job market remains bleak, Wu Jiawen, a 25-year-old graduate, told the agency at a job fair in Shanghai. “The job market is bleak this year,” Wu said, expressing “deep concern” about not finding work.
In addition to these challenges, the private sector, especially major technology companies such as Alibaba, Tencent, and ByteDance, is suffering from a slowdown due to increased regulation.
This decline has impacted employment, with significant job losses reported in the once-thriving internet sector.
The financial sector was not immune either. A banker named Wang revealed to Agence France-Presse that wages are now lower than they were a decade ago. Moreover, geopolitical tensions between Beijing and Washington, along with efforts by some countries to diversify their production chains, have negatively affected China’s exports, which represent a fundamental pillar of growth.
The credit market… signs of recovery
Despite these recurring obstacles, observers of the Chinese economy believe that there is a glimmer of hope looming from afar. The German News Agency reported that credit market activity in China returned to growth last May, with government bond sales increasing after a rare contraction the previous month.
Data from the People’s Bank of China indicated that the total volume of credit operations rose by 2.1 trillion yuan ($289.42 billion) last May, compared to 1.6 trillion yuan (about $220 billion) in the previous year, and financial institutions issued new loans worth 949 billion. Yuan ($131 billion).
The significant increase in government bond sales, at the central and regional levels – according to the German agency – aims to finance the necessary investments and mitigate the economic damage resulting from the slowdown in the real estate sector.
Last month, the People’s Bank of China kept key interest rates unchanged, keeping the 1-year loan rate at 3.45% and the 5-year loan rate at 3.95%.
Although the Chinese government targets a growth rate of 5%, it remains modest compared to the strong economic growth achieved by China in previous decades.
The intertwined crises between real estate and unemployment represent major challenges for China. However, the recent rise in the credit market offers a potential path toward economic stability.
