That’s quite a fantasy you’re telling yourself. A huge portion of China’s people’s wealth is wrapped up in real estate, and tens of millions of stalled residential units have already been purchased by the Chinese people, and that money is now gone, taken by the developers.
The IMF recommendation here was “to deploy ‘one-off’ fiscal resources to complete and deliver pre-sold properties or compensate homebuyers.” That would literally be rescuing the Chinese people who were burned by developers. Instead, the Chinese government is supporting the tech and manufacturing industries. Don’t pretend like China is some paradise where the common people aren’t getting fucked
Don’t pretend like the average person in China is a fucking real-estate investor. This investment money is from the middle class and up i.e. people who don’t need to be rescued. Common people just spend their paychecks and keep a little aside for savings, like everywhere else in the world.
My understanding is many everyday Chinese people bought real estate that wasn't yet built because demand was so high. Supposedly many of them sunk their whole life savings into units that developers had promised to build at some future point. That point seems unlikely to come if those developers go bankrupt, meaning that some decently large number of everyday people are going to lose their life savings.
The quick answer is because the housing market was used for speculation and was causing real estate prices and rents to rise. China introduced “three red lines” policy to mitigate this and let the housing market crash and let the billionaire CEO Hui Ka Yan (and mostly foreign Investors) hold the bag
There were other positive feedback items happening as well, including local governments relying on development as the major tax base.
China is also likely to see a drop in infrastructure investment in the next generation, so having some of these companies collapse isn’t seen as a major issue in China.
What has really been inflated, since 2008, has not been consumer prices, but asset prices — [that is,] real estate prices, stocks and bond prices, things that the 1% hold. Wealth has been inflated much more than goods and services. [This is especially true] for real estate.
This debt has been inflated not by government debt, not by government deficits, but by the Federal Reserve creating a $9 trillion subsidy to the banks to support real estate prices, and hence the value of bank-held mortgages and stock and bond prices.
This is not discussed, or even recognized, in the mainstream economic models. Instead, we have a kind of mythology by right-wing anti-labor financial lobbyists.
This mythology is about what I think most of the listeners are expecting us to discuss: the inflation of rising consumer prices. That’s the only kind of inflation that the Federal Reserve talks about. This is all blamed on increasing the money supply, as if somehow money is creating the inflation.
They are not talking about inflation as the result of monopoly pricing. They are not talking about inflation as a result of NATO’s sanctions against Russia. They are just talking about money [as if] somehow, if we [could] just stop money supply, if we could stop the government spending so much money on Social Security and Medicare, and other social spending (not military spending) then everything would be over.
We’re actually going to be talking about the relationship between, [on the one hand,] the inflation of housing and asset prices [and,] on the other hand, how this actually affects the inflation of consumer prices, and how debt and inflation all go together.
In May, officials unveiled the biggest rescue package yet. It contains a 300 billion-yuan ($42 billion) central bank fund that attempts to help local governments buy finished but unsold homes and turn them into subsidized housing.
Separately, the IMF warned of “significant downside risks” to China’s inflation outlook, saying “a negative domestic demand shock amid high debt levels could trigger a period of sustained deflation.”
Does it tough? Why would aggregate demand collapse because of real estate developers going bankrupt? They make up a small part of the population and hoard more of their wealth. Also, very funny that IMF only cares about private debt buildup when it affects the porky-happy.
Where is the concern for a demand shock when you pressure Kenya and Nigeria into raising sales taxes, which has much greater impact on aggregate demand?
Infrastructure building, including housing, was a major part of the Chinese economy. That part of the economy collapsed, which is causing China to try to transition to other industries to drive economic growth.
It is possible that the IMF is worried about the collapse of a Chinese industry, but it seems like China is trying to focus more on the effects of a collapse on the asset class given that said asset class is the main retirement savings in the country and the main driver of local government spending. China has also taken internal steps try to limit infrastructure spending in the last few years, so they may not be worried about development companies collapsing as long as their collapse doesn’t spread to the overall economy.