China trapped by capitalism
China has thus far functioned by building 15 million homes a year, which is 5 times more than the US and Europe combined. After the collapse of the 300 billion dollar Evergrande, the biggest real estate company in China, the issue – albeit not a recent one – of the country’s ghost towns has returned to centre stage. In truth, this term isn’t appropriate in China’s case because the towns are not so much ghost towns as just totally empty, unoccupied. These immense buildings and complexes, that were built or sold as investments, haven’t yet found buyers or renters, meaning that they are not ghost towns in the strict sense as they’ve never been inhabited before being deserted.
This is why around 65 million Chinese homes are empty, making up 20% of the national industry which in 2019 was estimated to be worth 52 trillion dollars and – let us not forget – is twice as big as that of the USA. These empty cities are alas the consequence of the trap that China has fallen into, reflecting this Western capitalism habit (that I have denounced time and time again) where real estate is one of the main factors – and even the main one in some countries – of economic growth. In a climate where real estate prices has increased tenfold in 20 years, even more in some places, the Chinese have been persuaded that it’s a no-risk investment that preserves wealth and increases prosperity.
The exacerbating factor in China is that the government has overestimated the rate of urbanisation there, that being the rate at which people leave their villages, which has indeed considerably increased over time, with 61% of people now living in towns and cities compared to 35% twenty years ago. At a time when public powers have actively promoted the development of property building, they have nevertheless succumbed to the weight of their ageing population, a population that is growing at its slowest rate since 1970. Today, the result is thus that China has a property market that is too ambitious, in cruel contrast to the population decline that developers did not anticipate, with an aggravating factor being that 90% of Chinese families already own their own home, compared to 65% in the US. China has therefore let this infatuation get completely ahead of them, and it has taken hold of all levels of society, with real estate making up 70% of household wealth and no less than 30% of the nation’s GDP.
In an effort to stem the fall of prices and avoid a crash, the authorities have reacted by making the process of selling real estate more complicated in order to dissuade homeowners from selling off their asset. In fact, it is completely possible to soften the blow by increasing the amount of time before the property can be sold, or by rejecting the transaction if the price is judged to be too low… As always in the case of measures of financial repression, the aim will only be achieved – that being the gradual and controlled lowering of prices – at the cost of the transactions level going into free fall which would be likely to cause panic. The appearances of a real estate crash would therefore be avoided but the population would nevertheless find themselves impoverished, because no more money would be released for education, health, or pensions.
It therefore seems that China is now having to deal with the disease-ridden nature of capitalism.