Increasing worries about China’s real estate and financial markets

25 September, 2023

Occasionally, I get a feeling that global financial markets get strongly worried about Chinese real estate markets – real estate markets that indeed are not very transparent. Most of the time, however, these worries still seem to be suppressed too much on global financial markets. In my view, the current real estate crisis may be much more serious than usually understood by many/most Western analysts.

So much has gone wrong in the real estate market

The share of real estate amounted in the past decade on average to 7-8 % of GDP. But it should not be forgotten that the total real estate sector runs up to 25 percent of GDP or somewhat more when all services and other activities linked to the real estate sector are included. Different percentage numbers can be found as well since real estate statistics in China most probably have substantial shortcomings.

To clarify further the dimension of the real estate crisis: Apartment prices have come down sharply more recently, up to 100 million apartments are empty and many of their developers and owners have lost a fortune. Personally, I would not apply changes of official apartment prices since price downturns may be much higher in reality than in official statistics.

A brief remark: Already 10-15 years ago, I could see huge empty apartment units in Chinese metropolitan cities without light in dark evenings (which – by the way – shows that human eyes sometimes can give or receive better information than screens).

A major problem for private apartment owners is also that buyers of apartments usually have to borrow money even before the start of their own residential project.

Real estate is by far the biggest single Chinese contributor to GDP and has therefore also importance for global GDP growth. We already know that real estate companies have come increasingly under pressure. This may or will affect negatively both banks/non-banks and the financial situation of municipalities – the latter now losing a lot of tax income from shrinking sales of real estate.

Furthermore, the real estate crisis in China also means increasing social challenges in a country where apartment ownership functions as a kind of necessary private pension, and where the difficult demography outlook indicates that total future need of apartment areas looks quite limited in a macro sense, particularly when youth unemployment – also for academics – will dampen demand at least for some time.

Yes, China is currently sliding more and more into a critical situation – very worrisome for the whole (financial) world!

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board


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BRICS II – another BRICK in China’s global strategy

31 August, 2023

We recently noticed the BRICS summit in South Africa. Expectations in our part of the world were not hopeful before the summit in a sense that decisions from Johannesburg would mean an encouraging injection for the global economy. However, it was recognizable that China managed to launch another brick in its global political economic strategy by establishing its de facto leadership for the new and enlarged BRICS II organization.

Democracy clearly underrepresented …

I have been watching BRIC(S) from its start in the early days of this century – i.e. before South Africa was invited to join – as quite an unnecessary organization. BRIC(S) was initially launched as a smart financial marketing idea of an American investment bank without any other logical unifying argument than putting together Brazil, Russia, India and China as the four largest emerging markets with – then – potentially good economic prospects.

Then, two of these four founding countries were not democratic (China -and at least partly – Russia), and two others could be described as democratic (India and Brazil, plus joining South Africa some years later).

Now, when BRICS II will come into force in a few months time, this previously quite balanced democratic participation in BRICS will not be maintained when the six invited new members will become part of BRICS II as well.

These six new BRICS countries are:

Iran, Saudi Arabia, United Arab Emirates (UAE), Egypt, Ethiopia and Argentina.

It is indeed very obvious that none of these invited six countries can offer democratic standards and/or economic strength. There is all reason to believe that democracy in the new BRICS II will become clearly underrepresented.

… and weak economies totally overrepresented

Another angle may be a pure economic one. Also in this context there is nothing encouraging to find – apart from currently more or less healthy macroeconomic stability in India, Brazil and the oil producers of Saudi Arabia and UAE.

So what can the 11-nation BRICS II finally offer themselves and the rest of the world? In my view not very much. There are too many internal imbalances.  May be some increase of intra-trade (mainly for oil and other commodities) could show up. An obvious disadvantage is the missing positive homogeneity between the countries.

However, one more aspect still remains to be considered in the BRICS II context: China’s global political and trade economic strategy with BRICS II as perfect tool.

Application of the old and new Chinese diversification efforts

As I have written before in this blog, China has been starting to work more ambitiously on its intensified and revised geopolitical strategy. I have followed China’s internationalization and globalization for many years and have to admit that China since the start of the opening-up reform policy by the prominent reformer Deng Xiaoping had a logical strategy in their search for enlarged international partnership through all the years.

The international reform steps in the opening-up context were during the years about FDI and more foreign investment in China, the move of Western labor force (experts) to China, increasing exchange of students with abroad both from and to China, mutual cooperation in research –> altogether different steps to improve skills, technology, products and productivity with ideas from outside China. So far about the traditional diversification objectives.

Gradually after China’s important WTO entry, Chinese political leaders also announced objectives for developing China into a technological superpower and for increasing its global political power, more lately very much by focusing on (emerging) countries that appreciate incoming Chinese investments and (expensive) financial support (, from February 17, 2023). Thus, we also have some examples of China’s modern diversification strategy, happening to a high extent geographically.

When summing up some international/global organizations below with obvious strategic interest, you can find some obvious examples where China already is or will become the dominant player, such as:

BRICS II – certainly an organization ready for increasing Chinese influence

Belt & Road Initiative (BRI) – infrastructure projects, fully led by China

RCEP (The Regional Comprehensive Economic Partnership RCEP) includes 14/15 East Asian and Pacific nations working for free trade among each others in a longer perspective (without having the U.S. in the organization). It is quite easy to imagine that China at some point will become more active within RCEP as well.

Looking at these examples clarifies well that China wants to expand its global influence. This will happen via bilateral action or via international organizations. Strengthened global platforms will become even more important to President Xi Jinping and the CP, since China nowadays domestically performs insufficiently after many years of boom.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board


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Worrisome news from China

15 August, 2023

China continues to disappoint the rest of the world. In the beginning of 2023, many countries over all continents based their own recovery forecasts to a high extent on the internationally widely expected post-COVID recovery in China. However, these positive expectations could not be verified so far – and probably will not do so during the remainder of 2023. Furthermore, weak fundamentals raise doubts about China for the longer run as well.

Poor economic developments increase global concerns about China’s economy…

China’s economy reveals currently quite some weak economic numbers: e.g.for GDP, exports and imports of goods, inflation (lately quite low, contrary to many other countries – and even causing deflation fears), producer prices (PPI), the PMI, etc.

In this context, we should keep in mind that the quality of Chinese statistics has been questioned many times in the past (also by myself), particularly when reality seemed to be weak. But how could/can too positive numbers be measured? Here we have an issue that never could be singled out so far, and certainly not these days either. Can the current weak macroeconomic numbers be even weaker in reality?

Lagging transparency still does not allow for an illuminating answer. Perhaps we can see today a development that I have been pointing already quite some years ago – the possible start of better statistical quality without being recognized on time because of all the historical confidence gaps.

Some late macroeconomic statistics with bad results look as follows:

GDP q2: 0.8 %, qoq (versus 2.2 % in q1, qoq) and +6,3 % yoy (due to low base last year)

Exports (of goods), July: -14.5 % (in current prices, now weakest for more than three years)

Imports (of goods), July: -12.4 % (in current prices, reflecting weak domestic demand)

CPI July: +0.2% mom, -0.3% yoy (but no deflation so far – needs persistently falling CPI)

PMI (for manufacturing, Caixan), July: 49.2 (from 50.5 in June); Caixan is to a high extent based on exporting companies in coastal regions whereas the official PMI (via NBS) reflect broader geographical analysis all over the country and also contains distinctions between different corporate sizes, July: 49.3 (from 49.0 in June).

… while China strengthens its political efforts in emerging countries

China has an obvious strategy in its foreign policy – directed against the U.S. This happens partly also in mental co-operation with Russia or directly by increasing the political and financial influence in particularly emerging African and South American countries – i.e. on continents that indeed have been neglected in the past few decades both by the EU as a whole and important EU countries.

In recent months, China’s President & CP Chairman Xi Jinping visited several strategically important emerging countries (looking for commodity deals). At the same time, a substantial number of high foreign officials came to China, well reflecting China’s strategic ambitions outside OECD countries.

This Chinese international policy approach is certainly appreciated at home   – but how do many or most Chinese look at the development at home and, consequently, at Xi’s leadership? We know by now that the economy develops poorly, resulting in consumers’ declining confidence. Young people’s fading positive visions for their future point at bad mood, too (mainly caused by record-high youth unemployment, officially for youngsters at the age of 16-24 years – in June as much as 21.3%, among them many academics; according to Western experts’ guess it could be even twice as much). Also the ever-lasting concerns about the real estate sector, local public debt and probably increasing bad loans should mean psychological worries with impact on the economy and possibly social stability at some point.

Thus, China needs clearly improved GDP growth. But where should it come from more than very temporarily? The number of options and possible progress in GDP growth seems to be very limited, at least under current conditions. Investments in infrastructure may be strengthened further after last month’s stimulation package – but now without being able to induce major growth contributions. In my view – which I have mentioned many times before – China could at least in the longer run benefit from better political relations to the West and economically from wide-ranging supply-side reforms at home, including particularly better institutions with more openness, transparency, better conditions for foreign investors and less nationalism.

Simultaneously, less nationalism would also be a good step forward for many Western countries.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board


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