China’s Property Market Crisis Is Trouble for the Whole World
(Bloomberg) -- China’s property market is in crisis. Real estate prices that skyrocketed over the past few decades have begun to fall back to Earth. Now the danger is that collapsing home values will also bring the world’s second-biggest economy down along with them.
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In the Bloomberg Originals mini-documentary China’s Property Meltdown, we explore how this upheaval started and look at what the implications could be for the global economy.
China’s real estate boom had its origins in fundamental supply and demand. When the country’s leaders opened the economy to foreign investors and private businesses four decades ago, it led millions to move from the countryside to China’s cities in search of factory jobs. That unlocked demand for housing and resulted in a building boom that would, at its peak, see real estate and related industries account for as much as one quarter of China’s economy.
Along the way, however, the purpose of real estate began to change. Because home prices had always gone up, people began to believe they always would. That led to more and more Chinese buying homes as a way of investing their savings rather than to live in. Rising home prices caused another problem by widening the wealth gap between those who owned property and those who didn’t.
For President Xi Jinping, who has said he wants to create “common prosperity” by shrinking that gulf, these were reasons to act.
See More: Why China’s Miracle Growth Story May Soon End
When Xi made his move to tighten property regulation, it set off a chain of events that have become a substantial drag on growth and a major challenge to his government. Home prices began falling, developers started defaulting and people got angry. The question now is whether authorities can act quickly enough to stop the problems in property from spiraling into a broader crisis for the financial system, Chinese society at large—and perhaps the whole world.
To see more Bloomberg Originals video documentaries, click here.To subscribe to the Bloomberg Originals YouTube channel, click here.
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