End to China’s estate market boom could spell trouble for the economy

In China today, the buzz is all about how the government there too has stumbled into an energy crisis with widespread power cuts. Yet this and other supply shocks will eventually pass, while the $300bn (£218bn) of debt enveloping China’s second biggest property developer, Evergrande, is of greater significance. It suggests China’s long housing boom is over, and bodes badly for the increasingly troubled economy, with implications for the rest of the world too.

China’s real estate market has been called the most important sector in the world economy. Valued at about $55tn, it is now twice the size of its US equivalent, and four times larger than China’s GDP. Taking into account construction and other property-related goods and services, annual housing activity accounts for about 29% of China’s GDP, far above the 10%-20% typical of most developed nations.

Real estate busts can be as painful as the preceding booms were exuberant. China, however, has only known growth as its previous housing welfare system was transformed from the 1990s onwards. A protracted housing downturn is now poised to add to the Chinese economy’s other mounting headwinds, with significant and unpredictable implications.

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