China’s slowdown in the real estate sector is affecting economic growth – and it’s not clear that there are new growth drivers to cushion the slack, said the executive director of a China-focused research firm.
“The greatest risk to the future is that, as the party is deliberately …, the party said CNBC’s Squawk Box Asia” on Tuesday.
He was referring to the long-ruling Chinese Communist Party in Beijing.
“They hope it is consumption, but it is not consumption yet,” he added.
China reported disappointing 4.9% year-over-year growth in the third quarter on Monday. The country’s National Bureau of Statistics said the real estate sector’s contribution to the economy has slowed.
Beijing has stepped up efforts to curb heavily indebted property developers as it moves away from being an investment-oriented one and debt-driven economic growth model. As a result, Evergrande and other Chinese developers struggled to repay their debts.
At the same time, China has not earned enough Progress in transitioning to a consumer-centric economy, Miller said. He said structural changes that could boost consumption – such as strengthening the currency and increasing the social safety net – have not materialized in China.
“Yes, you have seen a decline in investment in recent years, but you have not seen an increase in consumption. This is a goal right now, but it’s one that is not being worked towards – it’s nowhere near the data and I think this is a big concern going forward, “Miller said.
The latest official data showed that investment in fixed assets in the first nine months of 2021 was up 7.3% year-over-year – falling short of expectations of a 7.9% increase forecast by Reuters-polled analysts.
Meanwhile, retail sales rose 4.4% yoy in September, beating analysts’ expectations of 3.3% growth.
Lower home prices could hurt consumption
The challenges China’s real estate sector is facing could weigh on consumer spending, said Michael Pettis, finance professor at Peking University in Beijing.
Homeownership accounts for around 80% of the average Chinese person’s wealth, Pettis said.
“The reason why we are so concerned about consumption is the real estate prices,” the professor told CNBC’s Street Signs Asia on Tuesday.
“When we see a drop in home prices it will decrease the perceived wealth of households and they typically respond by cutting spending and rebuilding their savings. And if that happened, it would be bad for consumption, ”he said.
But if the Chinese economy slows, consumption would hold up better than other investment-oriented sectors like real estate, Petties said.
“If China gets it right, consumption will continue to grow a little slower, but it will still grow quite solidly,” said the professor.