Arthur Kroeber
Arthur Kroeber

Housing is still a key factor in China´s economy, but is no longer the main driver. Economist Arthur Kroeber looks in FNArena at what can replace real estate, and what the decline means for economic growth.

FNArena:

…The best the government can do is smooth the downturn, it cannot cause construction to re-accelerate, and attempts to keep housing sales at an artificial high level would be disastrous. We believe the authorities are alive to this risk. Their efforts to support a flagging property market this year were fairly modest, suggesting that they are willing to let sales and prices drift down so long as the moves are not too abrupt.

It is clear, however, that the housing´s shift from a growth driver to a zero or negative growth contributor means that tthe government´s aim to maintain GDP growth at 7% through 2020 is unrealistic, and will have to be revised down. – perhaps as early as next year. This outlook also underscores the urgency of deregulatory reforms, especially in services, that can help build a new economic growth driver to replace the sputtering real estate engine.

Commodity prices have already suffered from China´s construction slowdown of the last two years. It is likely they will fall further. In the past, China´s steel consumption tracked housing constructions quite closely, and the industry´s current forecast of 1% growth in total Chinese steel use over 2014-15 reflects a recognition of the housing peak.

More in FNArena. 

Arthur Kroeber is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´ request form.

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