A Deep Dive Into China's Declining Economic State

As China rapidly plunges into a real estate crisis, the effects of the country's economic decline have been felt throughout East Asia (Mstyslav Chernov, Wikimedia Commons)

Real estate is one of the primary drivers of economic growth in China, so the ongoing real estate crisis is severely impacting their economy and global growth. Factors intensifying the crisis include declining urbanization and demographics, which has led to falling consumer prices and a slump in exports. With the possibility of China’s economy being hindered for years looming over the country, China has struggled to take action against the crisis.

Real Estate Crisis

Much of the Chinese real estate crisis stems from the Evergrande Group’s liquidity crisis, which contributed to a slowdown in the Chinese property sector.

The Evergrande Group, based in China, is the second-largest property developer in the world’s economy, but also the world’s most indebted property developer. Evergrande has been in trouble for the last three years. Since their $81 billion loss in 2021 and 2022, their business has been on the decline. In August 2023, Evergrande filed for Chapter 15 bankruptcy protection in an attempt to restructure its $32 billion debt. One month later, its founder, Hui Ka-yan, was placed under police surveillance due to suspicions of illicit dealings.

This crisis at Evergrande, China’s largest property developer, has had a significant impact on the Chinese economy. The property sector contributes up to 30 percent of China’s GDP, so a crisis at Evergrande hurts China as a whole. Overall, Evergrande’s crisis has led to a sharp slowdown in the housing market and weakened financial stability. Economic instability has also triggered social unrest due to the real estate sector’s massive scale of employment and people having their savings tied up in properties. Meanwhile, excessive borrowing and rising prices have only intensified the crisis.

Effects On Asia

However, the effects of the economic slowdown were not limited to China. It has also led to weaker trade, tourism, commodity demand, and supply chain disruptions in Hong Kong, Taiwan, South Korea, and other Association of Southeast Asian Nations (ASEAN) countries.

One of the starkest examples of these bleeding effects is Taiwan’s waning exports, which have significantly dropped in the last few months. Hong Kong has also seen reduced trade and tourism, resulting in declining retail sales, consumer sentiment, and property prices. Meanwhile, other southeast asian nations are facing weakening investor sentiment due to fears of the slowdown getting worse in China, evident in falling stock market prices.

It is evident that this crisis has caused a ripple effect across other Asian economies due to their deep links with China’s economy, affecting exports, production, tourism, and stock markets. The Asian Development Bank even revised its growth forecast due to these issues, citing China’s property crisis as a downside risk.

Effects on Xi Jinping’s Image

Chinese President Xi Jinping’s image has been significantly impacted by China’s economic slowdown and the real estate crisis. Primarily, the crisis has exposed flaws in Xi’s vision of growth and hurt confidence in his legitimacy, causing many to question his ability to manage debt and push reforms. It also challenges Xi’s idea of “common prosperity,” raising questions about its effectiveness. Although Xi has already secured his third term, this challenge has caused doubts about his policies and ability to lead moving forward. Whether this will affect his political career is yet to be seen.