China: another real estate crash on the horizon, economic growth may disappoint

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A year and a half after the lifting of health restrictions in China, a new real estate crash is looming. The country’s economy is slowing and youth unemployment is at a record high.

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– The Chinese government is targeting growth of around 5% this year.

Deserted streets and half-empty apartment towers as far as the eye can see: in Tianjin, northern China, the real estate crisis has given rise to almost ghostly neighborhoods against the backdrop of unemployment in the world’s second-largest economy. A year and a half after the lifting of health restrictions that penalized activity, the real estate market is an obstacle to recovery. The sector has long represented a quarter of China’s broad-based GDP and has served as a driving force in many other areas. It is now moribund as the economy slows, resulting in unfinished housing and the distrust of many developers on the verge of bankruptcy.

Like many Chinese, Wang Dongmei and her daughter bought a house in 2016. Their property, located near a riverside pedestrian path, was worth 870,000 yuan (111,000 euros today) at the time. He has since then lost more than 30% its values, explains this retiree, whom AFP met in Tianjin, a major port city located 30 minutes by train from Beijing. “We want to sell it”sighs Ms. Wang, disillusioned to see that the market prices are “Lowest in 10 years”.

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A drop in prices per square meter

Buying real estate has long been considered a safe investment by the Chinese. The real estate crisis has called everything into question, and the drop in prices per square meter is a hard blow to household wallets. Since last year, China has stepped up measures to try to revive its real estate sector. In May, it also reduced the minimum allowance for first-time buyers and proposed the buy-back of unoccupied flats by local authorities.

With some mixed results. According to Zhao Xin, a real estate agent in Tianjin who advises potential buyers in a residential complex still under construction, there appears to be a jump in the market. But “To say we’ll find the same level again” sales than before the crisis “is not real”he believes, in the face of the desire of those in power to deflate the bubble that caused the debt of many private developers to explode. Some are now struggling to survive, such as Evergrande, whose failures regularly hit the headlines.

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Depressed labor market

A further drop in the price of new housing is expected this year from 15 to 20%, warns the rating agency Fitch. The economy will figure prominently in Communist Party discussions in July at an important meeting during which real estate measures are expected, according to many analysts. Youth employment will also be a central issue, predicts Harry Murphy Cruise, economist at Moody’s Analytics. President Xi Jinping called for action in May youth unemployment “absolute priority”. The rate hit record highs last year before the authorities suspended the release of figures to officially review their methodology.

A certain gloom was evident in Shanghai during a recent job fair. “The labor market is depressed”complains Wu Jiawen, 25, who graduated in December and “worry” because he still hasn’t found a job. This month, 11.8 million students will leave college and join the competition. China’s employment problem runs much deeper. Dynamic industries such as the Internet, which developed at great speed due to the lack of strict regulation, are now more controlled. The result: major employment funds, including digital giants Alibaba, Tencent and ByteDance, are shrinking amid falling profitability.

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Slow growth

Even the financial sector is not immune to this trend, although salaries exist lower than 10 years ago, according to a former banker named Wang, who does not want to give his full identity for fear of retaliation. From their side, export is bumping up geopolitical tensions between Beijing and Washington and the desire of some countries to diversify their production chain. This sector has historically been an important driver of growth for China, and its performance has a direct impact on the employment of thousands of companies.

“We’ll probably have to pass recession» before turning back, he pessimistically trusts Guan, the boss of a company that makes plastics. The Chinese government plans to grow around 5% this year. Many countries would dream of this pace, but for China it remains far from the meteoric expansion that has propelled it to the heights of the world economy in recent decades.

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