While some economists may argue that secular stagnation is to blame for China’s economic slowdown, concerns about sustained slower growth are overblown. If the country falls into a recession, it would constitute the next turn of the debt supercycle that began in the US in 2008 and moved to Europe in 2010.
CAMBRIDGE – The 2008 financial crisis in the United States kicked off a debt supercycle, which spread to Europe in 2010 and has recently engulfed many of the world’s low-income and lower-middle-income countries. Could the debt woes of Country Garden, the behemoth Chinese real-estate developer now facing billions of dollars in losses, augur the cycle’s next turn?
The answer remains unclear. While the Chinese authorities have a remarkable track record when it comes to containing economic crises, the challenges posed by a significant growth slowdown, combined with high debt levels – especially for local governments and the property sector – are unprecedented.
China’s current problems can be traced back to its massive post-2008 investment stimulus, a significant portion of which fueled the real-estate construction boom. After years of building housing and offices at breakneck speed, the bloated property sector – which accounts for 23% of the country’s GDP (26% counting imports) – is now yielding diminishing returns. This comes as little surprise, as China’s housing stock and infrastructure rival that of many advanced economies while its per capita income remains comparatively low.
CAMBRIDGE – The 2008 financial crisis in the United States kicked off a debt supercycle, which spread to Europe in 2010 and has recently engulfed many of the world’s low-income and lower-middle-income countries. Could the debt woes of Country Garden, the behemoth Chinese real-estate developer now facing billions of dollars in losses, augur the cycle’s next turn?
The answer remains unclear. While the Chinese authorities have a remarkable track record when it comes to containing economic crises, the challenges posed by a significant growth slowdown, combined with high debt levels – especially for local governments and the property sector – are unprecedented.
China’s current problems can be traced back to its massive post-2008 investment stimulus, a significant portion of which fueled the real-estate construction boom. After years of building housing and offices at breakneck speed, the bloated property sector – which accounts for 23% of the country’s GDP (26% counting imports) – is now yielding diminishing returns. This comes as little surprise, as China’s housing stock and infrastructure rival that of many advanced economies while its per capita income remains comparatively low.