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China property
OpinionComment
Yoshihiro Sakai
Yoshihiro Sakai

Opinion | Unlike Japan, China’s property crisis won’t lead to lost decades

  • China’s crisis stems from overenthusiastic investment while Japan’s was a result of speculation and bank profligacy
  • To revitalise its economy and calm international jitters, Beijing should look to other industries with higher investment yields, such as the tech sector

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Apartment blocks built by Chinese developer Country Garden are seen in Zhenjiang, Jiangsu province, on October 10. Shares in the heavily indebted company have risen recently on signs that officials are planning more support for the troubled sector. Photo: AFP
Yoshihiro Sakai
After Chinese President Xi Jinping’s amiable meeting with his US counterpart Joe Biden, he should have more space to focus on the economy. Many see risks for the world’s second-largest economy, which has entered a slowdown with the bursting of its property bubble.
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The fear is that China may slide into “Japanisation” – the phenomenon named for Japan’s lost decades after the economy tumbled in the late 1990s due to non-performing loan problems.

But China presents a different story, one that is worth examining in greater detail.

Since around 2017, China has moved to curb its frothy property market, regulating prices to prevent excessive fund inflows even as the supervision of banks tightened. In line with this policy direction, average home prices have generally trended lower, particularly since August 2021.

The roots of the bloated property sector can be traced back to the global financial crisis. In 2008, China introduced a 4 trillion yuan (US$586 billion) stimulus package. Coming after three decades of economic growth that lifted 800 million people from poverty, this injection helped to transform China’s landscape, adding high-speed railways, highways and airports. China’s per capita income took off and, by 2010, it had the world’s second-largest gross domestic product.
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But the construction boom also created a massive property sector, estimated to now account for as much as 23 per cent of China’s GDP. This boom has since peaked and offers diminishing returns, especially in small and medium-sized cities. The result: China has the capital stock of a developed economy – its housing space per person, for instance, is 430 square feet, as much as in Germany or Japan – but not the income.

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