Struggling real estate sector weighs on China's property-driven growth model
Proactive Investors
Published Sep 12, 2022 08:50
Updated Sep 12, 2022 09:00
Struggling real estate sector weighs on China's property-driven growth model
The Chinese real estate market is undergoing a severe and drastic reshuffling process with the deflating property bubble spilling over into other sectors.
Property sales are expected to drop by 24.5% in 2022, according to a Reuters survey of analysts and economists in late August, a far bigger drop than the 10% fall forecast in the May poll.
The stakes are high as figures from America’s National Bureau of Economic Research indicate that real estate, including allied activities, contributes as much as 29% to China’s GDP and has been a key driver of its sustained economic growth.
Moreover, around 70% of household wealth in China is stored in property.
Spillover into other sectors
China’s deflating property bubble has also spilled over into other sectors, including the country’s banks and asset managers that specialise in managing portfolios of troubled loans and distressed debt.
China Cinda Asset Management Co., the country’s largest bad debt manager, recently reported a 33% drop in first-half profits to US$653 million.
Cinda said the Chinese government was “faced with an increasingly complex, grim and uncertain development environment.”
The company’s peer, China Huarong Asset Management Co., reported a US$2.7 billion net loss for the first half, and described the country’s economic conditions as “extremely complex and difficult”.
Huarong’s international finance arm predicted that in the second half, China will face manifold challenges including pressure on investment, consumer spending and export trade.
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