Xi Jinping's regime ‘floundering’ says Paul Monk
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Billionaire George Soros has called China’s property market “unsustainable”, saying that its current crisis could be the downfall of the country’s ruler. China’s property market has been on the downhill since its long housing boom came to an end. The country’s real estate market is valued at about $55trillon – twice the size of the market in the US – with annual housing activity accounting for 29 percent of China’s GDP, far above the 10-20 percent seen by most developed nations.
But Mr Soros claimed that the sector has become too dependent on using “unsustainable” property development to push growth since Xi Jinping came to power in 2013.
This comes as the country’s biggest developer, Evergrande, was forced to halt trading earlier in January after receiving an order from authorities to demolish 39 under-construction buildings as its debt crisis spiralled out of control.
The company is now under the grip of a massive state-led restructuring operation.
Mr Soros added that Evergrande’s failure, and other similar issues spreading throughout the industry, have left “people’s confidence shaken” and the economy ailing.
The turbulence, he said, “will turn many of those who invested the bulk of their savings in real estate against Xi.”
In a speech in the US, the billionaire said: “The model on which the real estate boom is based is unsustainable.
“People buying apartments have to start paying for them even before they are built.
“So, the system is built on credit.
“Local governments derive most of their revenues from selling land at ever-rising prices.”
China expert George Magnus agreed with Mr Soros’ argument, saying that the crisis could have consequences for the country’s leadership.
He told the Guardian: “We do not know how well China will manage to wean itself off real estate construction and services, but it will not be easy or painless.
“There will be important consequences for China’s economy, possibly its leadership, and the way China projects its influence abroad. Stay tuned.”
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Since 2017, the Chinese government has attempted to limit the overbuilding that characterised the first few years of Xi’s presidency.
According to Mr Magnus, in 2020, about a fifth of China’s housing units were unoccupied because they were too expensive for the general population.
But he said that new regulations introduced last year “designed to curb debt, preserve cash, and limit overbuilding” have “exposed the financial fragility of developers and moved the precarious housing bubble centre stage.”
He said: “Even if, as seems likely, the Chinese authorities can keep the fallout from Evergrande from becoming a Lehman-type shock, a downturn in the property and construction sector could well aggravate China’s looming economic slowdown.
“Some expect China’s growth rate to slide to 1-2 percent, for a while at least.”
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