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Is China's economic model broken? | FT - YouTube
Channel: Financial Times
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[Music]
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china now badly needs a new growth
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engine china is far more reliant on real
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estate as a driver of economic growth
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than anywhere else in the world
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president xi considers housing policy as
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the central part of its common
[17]
prosperity drive a lot of people look at
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green technology as a potential savior
[27]
[Music]
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the meltdown at evergrand the world's
[31]
most indebted real estate company has
[34]
been unfolding in a dramatic way and it
[37]
could signal a huge shift in the way the
[40]
chinese economy works it's clear that
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the economic model that drove china's
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world-beating growth over the last two
[49]
decades or more is running out of road
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what follows now is uncertain but it
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could entail significantly lower
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economic growth for the world's second
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largest economy this is important for
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the whole world because china has been
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the major contributor to global growth
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for the past few decades in the five
[72]
years to 2018 china accounted for up to
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one third of global growth
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the problem however is that
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real estate has been driving china's
[83]
growth for too much and for too long
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and that cannot continue forever
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china now badly needs a new growth
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engine
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this footage shows 15 apartment
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buildings being torn down in the
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southwestern city of queen ming
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recently as these buildings have stayed
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idle for the past few years
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such things are by no means uncommon in
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china as the country is now home to one
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of the world's largest number of
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unoccupied apartments
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during my recent trip to the eastern
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city of jinan i found the city is
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scattered with empty apartments and
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empty buildings
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many home buyers were forced to move
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into these half built apartments
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as local developers were too cash
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strapped to finish these complexes
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this chart shows the extent of the
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problem compared to other countries
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china is far more reliant on real estate
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as a driver of economic growth than
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anywhere else in the world spain is the
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only place that came close in 2008 and
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that bubble burst in spectacular fashion
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so soon
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we've had this situation of an overbuilt
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chinese property market for a long time
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why are people getting so worried about
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it now
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the reason people are getting so worried
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this time is because
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president xi jinping is in power in
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china this time and he famously said
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that housing is for living not for
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speculating
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and president xi considers housing
[191]
policy as the central part of its common
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prosperity drive
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housing affordability in china right now
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is among the worst in the whole world
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as of the end of last year it would take
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an average of 25 years of household
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income in a southern hub of shenzhen to
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purchase an apartment
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in contrast the figure is about 13 in
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london and eight in new york
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apparently president xi couldn't
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tolerate this and he wants things to
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change
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and the solution is the so-called three
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red lines which is three
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financial ratios mostly debt ratios that
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china's real estate developers must
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follow in order to gain access to credit
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the policy which was launched last
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august has had a huge impact on the
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industry as many developers led by
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evergrant
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are in deep financial trouble for
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failing to follow these requirements
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so james if china's real estate driven
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growth model is running out of steam
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what would be next growth engine for
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china
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so the question of what type of growth
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engine can emerge in china to take up
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the slack from the sputtering real
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estate sector is really the 64 million
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dollar question going forward um and i
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think a lot of people look at green
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technology as a potential savior
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china's record in this area is truly
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remarkable uh china's installed more
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solar power more wind power than any
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other country in the world and in the
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case of wind power the amount of wind
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farm capacity that was added last year
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was greater than the rest of the world
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put together also in electric vehicles
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it's quite stunning what chinese
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companies are doing
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so far over 40 percent of all the
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electric vehicles sold in the world have
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been sold in china you can really tell
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the chinese government is behind this
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one of the biggest figures to emerge
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from china over the last month was an
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estimate by zhang xiaohui
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dean of the school of finance at ching
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hua university who said that china would
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need between now and 2060
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about
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46.6 trillion u.s dollars to put behind
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its carbon neutrality
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drive
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it just to put that number into
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perspective that means that every year
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between now and 2060 china will be
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investing 1.2 trillion u.s dollars
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that is equivalent to the size of the
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entire indonesian economy so there's no
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question that china's really serious
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about this it's just too early to say i
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think
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whether or not this green technology
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area will be big enough and attract
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enough investment to really compensate
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for the flagging real estate sector
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despite the huge potential for green
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revolution china still relies heavily on
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fossil fuels to power its economic
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growth
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coal-fired power plants currently
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account for more than two-thirds of
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china's energy consumption
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unfortunately the authority has largely
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underestimated the situation
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in the first eight months of this year
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china's coal output grew only four
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percent thanks to the closure of
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hundreds of coal mines across the
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country at the same time the countries
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of energy consumption picked up by 15
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percent
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owing largely to the post-pandemic
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global economic recovery that boosted
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china's exports by more than 35 percent
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in the same period
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the so this combined suggests that china
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is still having a long way to go in
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making a transition from
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an economy that's driven by traditional
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economy by real estate to one that's
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powered more by renewable energy and
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other more sustainable models
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