Is Japan-style Deflation Coming to China?
China’s real-estate sector is buckling under the weight of falling prices, a huge and growing inventory of unsold units, and highly indebted developers. Add to that slowing GDP growth and falling inflation, and a prolonged period of stagnation and deflation, triggered by a property-bubble collapse, seems increasingly likely.
TOKYO – Recent economic news from China has triggered the same helpless, sinking feeling that gripped me when Japan’s property bubble collapsed in 1991-92. Will this sense of déjà vu continue, with China apparently heading down the same path of deflation and stagnation on which Japan embarked three decades ago?
Earlier this month, Evergrande – the massive Chinese real-estate developer that defaulted on its debt in 2021 – filed for Chapter 15 bankruptcy protection in the United States in the hopes of restructuring its dollar-denominated debts. (Chapter 15 allows a US court to intervene in an insolvency case involving another country.) And now the property developer Country Garden has missed $22.5 million in payments for offshore bonds and suspended trading in 11 onshore bonds, raising the prospect of a default.
These are hardly isolated incidents. China’s real-estate sector – long a leading engine of GDP growth – is buckling under the weight of falling prices, a huge and growing inventory of unsold housing and office buildings, and highly indebted developers. A property-bubble collapse seems likelier every day.
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