Things tough all over
For decades, U.S. consumers have feared a future Red China that dominates the world economy on the strength of their bazillion people. “Made in China” was coming for everything. We thought.
Those were the good ol’ future days for mainland China. Unfortunately for the Red Dragon, the present is not looking so great economically. But for different reasons than you might expect: While the United States and other countries rebound from the high inflation of 2021-22, China is fighting … deflation.
In China, people and businesses are not spending, and it’s pushing the economy towards deflation. Consequently, real estate prices are tumbling. This might seem like welcome news to the new homebuyer, but it’s terrible news for the debt holder of the home.
In fact, according to Beike Research Institute, a Tianjin firm, “prices of existing homes in China have fallen an average of 14 percent from their peak in August 2021. Rents have fallen 5 percent.”
While prices for new homes haven’t fallen as much, it’s hard to determine if this is due to free market forces, government intervention, or government deception (it wouldn’t be the first time). Official data indicates smaller price declines, but local governments have pressured developers not to cut prices and instead opt for items like free parking and other kickers that don’t necessarily show up in the box scores of the strength-of-economy game.
Some blame measures to combat the spread of covid in China, which would be considered extreme, if not outrageous, in America. Actions like forcing large chunks of people into quarantine camps no doubt have had a negative impact on the psyche of Red China’s people. It wouldn’t be too surprising if they are still too shell-shocked to get excited about investing in a future that may include the ugliness of the recent past.
But, that’s just one factor. These challenges have been coming for decades.
To add insult to injury, China’s birth rate has been dropping dramatically over the years, which means fewer young people around to rent apartments. And if apartments are unrented, appliances for them go largely unbought.
Nobody is claiming the Red Dragon is slain, but it is wounded.