Copyright © BusinessAMBE 2023
Summary. The financial collapse of Chinese real estate giants Evergrande and
Overheated real estate sector
In the news. Evergrande and
China's population growth rate has been negative since 2022. The fertility rate is not enough to renew the population, putting a long-term strain on economic growth.- The crisis has led to a decline in construction activity, a drop in house prices and an increase in local government debt. All this contributes to a broader economic slowdown.
Which Asian century?
Zoom in. The collapse of the real estate market has a direct impact on the wealth of households. These have 70% of their wealth invested in real estate. This is causing increased thrift and a decline in consumption.
- The saturation of infrastructure projects and their diminishing returns undermine further economic expansion. Add to that explosive debt growth among local governments.
- Chinese stock markets have lost about 30% of their value over the past 2 years. This further erodes the financial security of businesses and households.
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Emigration from
India andChina undermines the "Asian century" argument. Many analysts predict that both countries will inevitably dominate global geopolitics.-
Increasing illegal migration from
India andChina to theU.S . and data suggesting that skilled workers and the very rich are moving away from the two countries indicate that their upward trend is not assured.
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Increasing illegal migration from
Shifting to a consumption-based economy
Zoom out. The shrinking labor force and declining birth rate are putting pressure on long-term growth.
China faces the challenge of shifting from an economy driven by investment and exports to one based more on consumption and technological innovation.-
While
China's advantage in standard low value-added production is declining, competition from countries such asIndia ,Vietnam andIndonesia is increasing, highlighting the need forChina to focus on higher technological innovation and productivity improvements.
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