China’s Grand Design for Housing | The Corona Correction | Refinitiv

TL;DR

China's attempt to reorient its economy and move towards high-tech industries may be difficult to achieve, as rebalancing efforts have historically resulted in weaker growth.

Transcript

Welcome to The Corona Correction Series in association with Refinitiv. I'm your host, Roger Hirst. China has been trying to reinvent its economy for the past few years and intends to use the upheaval from the Corona crisis as yet another catalyst for change. Joanna Davies, Senior Economist of Fathom Consulting, however, remains skeptical that China... Read More

Key Insights

• 💨 China's attempt to move towards high-tech industries and away from traditional levers of growth is met with skepticism, as rebalancing efforts have historically resulted in weaker growth.
• 😀 China's housing market is facing issues with an abundance of unfinished floor space, indicating potential inefficiency in the construction sector.
• 👁️‍🗨️ The juggling act of maintaining economic growth, preventing social instability, and avoiding bursting the property price bubble poses challenges for China.
• 🇨🇳 Underemployment in China is a significant issue, with resources not being used productively and potentially hindering economic growth.
• 🥺 China's credit-fueled expansion has led to spare capacity equivalent to a house for every individual in the UK, highlighting the magnitude of the situation.
• 🍉 Previous attempts at rebalancing the economy have resulted in static growth initially, followed by weaker growth in the long term.
• 🙈 China's focus on high-tech industries is not new and has seen limited progress, especially due to tensions with the US.

Questions & Answers

Q: Has China been successful in implementing real change in its economy?

According to Joanna Davies of Fathom Consulting, China's attempts at reinventing its economy may not result in real change, as previous efforts at rebalancing have shown limited success. The focus on high-tech industries is not new and has seen little progress so far.

Q: What is the current state of China's housing market?

China has a massive amount of unfinished floor space, equivalent to 70 million houses in the UK. Projects take an average of seven years to complete, highlighting the extent of the problem. This approach helps keep resources tied up and supports the economy without depressing property prices.

Q: How does China manage the supply and demand of completed properties?

China has managed the supply and demand of completed properties by lining them up to perfectly match the demand. In the past, the time it took to clear properties was around one year. More recent data suggests that the stock of ready-to-go properties would clear in less than a year.

Q: What is the issue of underemployment in China?

China's underemployment, which considers workers who are not being used productively, is estimated to exceed 25% of the labor force this year. This highlights the problem of resources not being utilized effectively and adds to the challenges faced by China's economy.

Summary & Key Takeaways

• China's policymakers have encouraged an investment boom in an attempt to find sustainable growth, but this may not lead to real change in the economy.

• China's previous attempts at rebalancing the economy have resulted in static growth in the short term and weaker growth in the long term.

• China's housing market is facing issues with unfinished floor space, with projects taking an average of seven years to complete.