Property crackdown in China sinks economic growth

China’s economy is going back to the lows witnessed in 1990. It is a price President Xi appears to be willing to pay to decrease its dependence on this sector.

Experts estimate that Beijing’s squeeze on the sector will remain unchanged in the next year and beyond. Many had not seen a development coming that now prompted banks. These include Nomura Holdings Inc., Goldman Sachs Group Inc., and Barclays Plc, to lower their growth estimates to below 4.5% in 2022.

It’s a significant step down from pre-pandemic rates closer to 7.5%. Giving China status as the world’s second-biggest economy means softer demand for commodities produced by countries like Indonesia and Australia. This also means more passive spending by Chinese customers crucial to multinationals such as Apple Inc. and Volkswagen AG.

Economists are close to realizing that the top decision-making body of China seriously took a decision when it promised not to use the property sector for stimulating the economy this year.

Officials declare that excess housing supply threatens economic stability. They also added that investors should prioritize sectors such as hi-tech manufacturing instead of apartments.

An economist at Beijing-based consultancy Plenum, Chen Long, said that President Xi believes that the property sector is too large. He also added that Xi is involved in real estate policies, meaning that ministries can’t facilitate policies without his approval.

Nomura’s chief economist, Rob Subbaraman, expects China’s slowdown to 4.4% next year from 7.2% this year. He said that Beijing is ready to lose some short-term growth hoping to get greater long-term stability.

Covid outbreaks in China

Another drag on the economy appears to be weak consumer spending. It is a big deal with China’s zero-tolerance to occasional outbreaks and severe lockdown measures frightening consumers and forcing businesses to close.

China’s Chief economist at UBS AG, Tao Wang, mentioned that in the case of longer zero Covid policy in the country or deeper property downturn, GDP growth might drop to 5% in 2022.

In fact, official data shows that China’s property sector has the biggest question mark over the economy. It has a massive scale of more than 950 million square meters of apartments constructed every year.

Any slowdown or a noticeable drop in real estate development would make a gap in the economy difficult for any sector to fill quickly.

Chief China economist at Macquarie Group Ltd, Larry Hu, said that China’s property slowdown is also important to the global economy.