Avoiding the Pain of China's Housing Crisis Risks Infecting the Wider Economy
Avoiding the Pain of China's Housing Crisis Risks Infecting the Wider Economy
China’s stuttering economy will have negative effects for the rest of the world, co-writes AS/COA Chairman Emeritus in South China Morning Post.
History has shown that financial crises are often the story of either a housing bust or stock market collapse – or both. Think of the crash of 1929 that started as a Florida-driven housing boom-and-bust cycle and morphed into a stock market collapse that shook the United States and the world.
Or consider the 2008 global financial crisis, which started with complex derivatives in subprime mortgages and was rapidly transmitted from bank to bank and market to market as investor panic rose. In 2022, the latest iteration of a damaging housing price collapse is unfolding in China. It will be felt widely, slowing other economies and radiating outwards.
What started with US$300 billion in debt held by Evergrande is spreading quickly and dangerously as developer after developer defaults. The knock-on effects are real and growing. When builders default, they stop paying their suppliers, those companies fail to pay their workers and the lay-offs start.
With construction making a significant contribution to China’s economy, defaulting developers are just the beginning. With developers in trouble, investors and Chinese mortgage holders are losing confidence in firms and the country’s economic outlook…
