The industry that has traditionally powered about a quarter of GDP has been in a downward spiral that policymakers have struggled to halt
All across China, from Beijing in the north, to Shenzhen in the south, millions of newly built homes stand empty and unwanted. There were nearly 391m sq metres of unsold residential property in China as of April, according to the National Bureau of Statistics. That is the equivalent of Manchester and Birmingham combined – and then some – sitting as vacant, unwanted property.
This glut of idle property has caused a headache for the government, shaken the world’s second largest economy and raised tensions over the purpose of housebuilding in a nation where property investment had been viewed as a safe bet.
Since the real estate sector was sent into a tailspin in 2020, caused by the pandemic and a sudden regulatory crackdown, the industry that has traditionally powered about one-quarter of GDP has been in a downward spiral that policymakers have struggled to halt.
The crux of the problem is that, with shaky faith in the economy and big property developers failing to deliver on paid-for apartments, potential homebuyers are keeping their money out of the market.
I think I prefaced the statement with it depended on what you consider a subsidy. I admit it isn’t semantic, but I really consider any government assistance to private equity a subsidy. Mainly because it in truth and investment in which the government is hoping for a return.
Right, but this is a reclamation action. It’s not what the original investment was meant for, and surely they aren’t getting the same monetary return they originally hoped for.
I support governments subsidizing affordable housing, this is another thing I think western states need to realize. However, it doesn’t seem like they needed to focus on that much housing at the moment, and it doesn’t seem like that was their original intention.
I think the government’s entire existence should evolve around fulfilling their public’s needs, including adequate public transportation. The key word there is need. The Chinese government didn’t need to throw billions of dollars to private equity to build more homes than necessary. They did it because they wanted to maintain their gdp, so they could flaunt their economic vanity alongside the US on the international stage.
Fair enough. I think then it’s important to distinguish between what subsidies are worth tariffing and what subsidies are not. If Germany rezones an area to allow car factories to be built, is that a subsidy worth tariffing?
I mean, in this case it’s more that the developers lost money and the government gained assets sold below book value… That’s pretty good return imo. The developers’ investors got fucked, yes, but have you looked at, say, Evergrande’s ownership? Not all Chinese developers are state-owned. In fact, the distressed ones are not.
Except… Do you know how China imputes rent for their GDP calculations? It’s the construction cost depreciated linearly over the life of the building. Think about that for a second, then come back to me. I can explain it to you, but when I realized what it meant it shook me to the core so maybe it’ll have the same effect on you lol. For reference, the US imputes rent by asking “what would the homeowner have paid if they had to rent.”
Eh, I don’t really have a strong opinion on tariffing. Tbh I don’t really have strong opinions about subsidizing private equity, other than they really shouldn’t really exist.
Under “free market” capitalism subsidies nor tariffs should exist by definition. And under socialism or communism, I would much prefer that the state employ the workers to do the work of the state. Subsidizing private equity just moves the people’s money into the pockets of middle men.
I think the current global regression back to an odd stage of mercantilism is the product of the moneyed class in China and the west attempting to goad political leaders into abandoning their economic principles for greater profit margins.
Right, but the developers are way over leveraged meaning that it’s not really their money but the banks. The banks/government is making the best out of a bad situation, but they are still loosing substantial amounts of capital. One of the reasons this kicked off in the first place was the government trying to get a handle on private equity borrowing more than their company is worth. That’s not really not criticism on the government action, it’s best to pull that bandaid off as soon as possible, but it still hurts. I think it’s mainly the fault of local banks who have probably been either careless or fraudulent in their reporting to the central bank.
Again, this just isn’t something I really care about much. GDP and how it’s calculated is mostly legal fiction, utilized primarily for international bragging rights and as a way to lull investments from foreign capital.
It sounds like China utilizes user cost approach, and the west utilizes the comparison approach. China’s approach makes sense for a more centralized lending apparatus, as it can help prevent the boom and bust cycle so common in western real estate market. But it’s still susceptible to market collapse if you miscalculated building cost or depreciation values, and makes it harder to sustain value in real estate investments unless you are constantly building more and more.
I think in the end it just creates two different types of problems. In the west the comparison approach provides less motivation for developers to build an adequate amount of housing. In China, it creates too much incentive for developers to overdevelop housing to the point where it devalues the very concept of individual investments in housing.
I think a better solution would be to consider affordable housing development to be a natural monopoly that is provided by the government without the input of private capital. But that would be a blow to GDP for both systems, and I think we both know how the capital class of both China and the west would respond to that.