Skip to content
China’s spluttering growth engines
The distortions of Beijing’s unbalanced growth model are coming home to roost.

Table of Contents

China's Housing Crisis and the Implications for Global Trade

A recent report has revealed that up to 80 million properties across China are sitting vacant, a result of decades of overbuilding driven by speculative demand. This has led to a crisis in the country's provincial economies. The investment-led growth model in China has been driven by local governments, with infrastructure and property each comprising about 30% of the total investment. Local government financing vehicles (LGFVs) have played a crucial role in funding China's colossal infrastructure buildout, but this has led to unsustainable levels of debt.

Beijing has recently restricted the ability of indebted provinces and municipalities to tap LGFVs for infrastructure spending, leading to a decline in investment in these regions. Efforts to resuscitate the real estate market, including a land sale moratorium, will further constrain provincial finances. China's overcapacity has also affected the industrial ambitions of lower and middle-income countries, with Chinese manufacturing imports from these countries declining.

Despite calls for boosting growth through measures such as expanding China's social safety net, Beijing has shown little inclination to do so. This, coupled with the inexorable deceleration of traditional growth drivers, has implications for China's trade posture. The country's leadership is now looking to externalize weak domestic demand, leading to a desperate push for growth. This is unlikely to provide much solace for G7 manufacturers and does not bode well for current attempts in the European Union to negotiate managed trade deals on electric vehicles.

Overall, China's housing crisis and its impact on the country's growth model and trade posture have significant implications for the global economy.