Commentary
A few months ago, I wrote that the Chinese slowdown was much more than COVID-19 related and pointed to the challenges coming from the excessive weight of the real estate sector in the economy.
A research paper by Kenneth Rogoff and Yuanchen Yang (pdf) estimated that the real estate sector constitutes 29 percent of China’s GDP. The problems coming from the slow-motion deterioration of the property sector have extended to the financial challenges of China’s local governments and may create a relevant fiscal problem for the nation’s public accounts.
“Sales at China’s largest housing developers fell 43 percent in June from a year earlier, according to China Real Estate Information Corp,” Bloomberg reported, creating an alarming funding gap for local governments, where finances are heavily dependent on land sale revenues, and a significant problem for the financial sector and the government. China’s central bank has promised to mobilize a $148 billion bailout to complete unfinished real estate projects as anger rises among property buyers that haven’t received their homes after advancing significant payments….