China Is Unleashing Its Arsenal Of Policy Support Tools
It Still Needs To Pull Out The Big Guns
China is on the brink of economic catastrophe. There’s just no way to be nice about it. For years, the People’s Bank of China has kept interest rates suppressed and enough liquidity flowing into the system to continue printing 6%+ annual GDP growth rates like clockwork. For decades, the growth vehicle of choice has been the real estate sector. It’s kept building & building for years and now the consequences of all that overbuilding are starting to show up in a major way.
To understand the scope of the issue, the real estate sector now accounts for 30% of Chinese GDP. In 2021, that number was 22.5% and remains much higher than that of the United States economy, which accounts for roughly 17% of the national economy. Now, the mania surrounding the huge construction boom, which was supposed to continue fueling economic growth, is reversing. Evergrande has already declared bankruptcy, weighed down by a mountain of debt from overleveraging themselves. Country Garden managed to service its most recent debt interest payments, but it looks like it’s heading down the same path.
The news may be even worse than thought.
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