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Ekonomické zprávy
09.11.2021

China’s property market debt could weigh on the country for years - economist

CNBC reports that according to George Magnus, economist and research associate at the China Centre at Oxford University, the debt problems facing China’s property sector are likely to cause a period of stagnation which affects both the domestic and global economy.

Of the challenges facing the world’s second-largest economy in the coming years, Magnus argued that debt — relating to the property sector in particular — could be the most problematic.

“I think the property market really has reached a tipping point now,” - Magnus said.

Magnus suggested that after at least two decades of expansion in the Chinese real estate market, due to the government’s willingness to step in to boost the market when it began to look perilous, Beijing may no longer be willing or able to do the same this time around.

A research paper by renowned Harvard Professor of Public Policy and Economics Kenneth Rogoff and IMF Economist Yuanchen Yang, published in August 2020, estimated that the real estate sector accounts for around 29% of China’s GDP.

This includes housing investment, services such as managing, renting and buying, along with other inputs such as commodities and consumer durables.

“If 29% of GDP just marks time, let alone declines, for the next 10 years ... you will know all about it, and people that sell into that market, whether internally or from outside, will also feel that,” Magnus said.

“The leverage which has basically driven that market and the companies like Evergrande ... over the last 10 or 15 years, I don’t think that’s going to be there in the future. It’s not going to happen.”

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