Oct 11, 2023 - Economy

China's real estate struggles could threaten global economic growth

Select real estate activity indicators in China
Data: IMF; Note: Real estate investment refers to PPI-adjusted fixed asset investment in the real estate sector; Chart: Deena Zaidi/Axios Visuals

The world's second-biggest economy continues to grind its gears, as its crucial property industry flails.

Why it matters: At its peak, China's residential property sector was thought to contribute an estimated 25%-30% of the country's GDP. Its ongoing struggles present a challenge to economic growth in China that will ripple out to other nations — as China has been the largest single source of growth for the world economy in recent decades.

The latest: Country Garden, the largest Chinese property developer thought to have close ties to the central government, failed to make a payment on an international bond on Tuesday, and released a statement saying that it would likely default on bonds denominated in U.S. dollars and other currencies.

  • Meanwhile, in its closely watched World Economic Outlook report issued on Tuesday, the International Monetary Fund cut its expectation for Chinese growth — and noted that China's troubled property sector poses a risk to both the domestic economy and the commodity exporters that rely on Chinese demand.
  • Separately, a Bloomberg news report — citing anonymous sources — suggested that the government was planning more fiscal stimulus aimed at lifting growth, a signal that Beijing is becoming increasingly concerned about the economy's trajectory.

Between the lines: Such reports on the worsening outlook for the Chinese economy seemed to weigh on key global commodities prices on Tuesday.

  • Prices for Brent crude oil, the global benchmark — which had soared in recent days on political risks posed by the war between Hamas and Israel — relented.
  • Copper prices, viewed as a key barometer of growth in China, also slipped.

What they're saying: "Country Garden — China's largest property developer and a major beneficiary of government support — is facing severe liquidity stress, a sign that real estate distress is spreading to stronger developers," the IMF wrote in its report.

  • "Property developers face severe funding constraints, preventing them from completing pre-sold homes ... real estate investment and housing prices continue to decline, putting pressure on local governments' revenues from land sales and threatening already fragile public finances," the report said.
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