How deeply rooted are China’s economic woes?

CHINA’S economy has continued to struggle in 2024, laying to rest any remaining hopes of a strong post-pandemic recovery. Instead of a rapid rebound as many analysts predicted, China’s reopening boom never materialised. It also appears that the Chinese government is not inclined to make major changes to its economic management, and the high-profile Third Plenum came and went without significant reforms being announced.

The country’s economic trajectory can be traced back to four major issues: First, the real estate market is in a protracted downturn; second, Chinese consumers have held back their spending after the economy reopened; third, deteriorating local government finances threaten a sharp slowdown in investment; and, finally, China’s private sector “animal spirits” remain weak after the policy crackdowns of the past several years.

Real estate correction

The housing market is in disarray, with millions of unsold apartments, bankrupt real estate developers and homebuyers losing confidence that pre-sold units will be delivered and prices will not fall further. Decades of excessive investment and property developers with balance sheets stretched to the point of breaking meant that the real estate market was headed for a painful adjustment irrespective of government policy.