2023-08-19 09:00:00
Especially the Chinese real estate crisis
With the weakness of many indicators of the Chinese economy shown by official data, which predict the weakness of the second largest economy in the world, the second largest economy in the world is receiving successive shocks from the real estate sector, manifested in the inability of the real estate development company Country Garden to pay its debts and the announcement of the “China Evergrande” company. About submitting a request for protection from creditors, prompting experts and international banks to question the rapid recovery of the economy.
• The Chinese real estate sector has been suffering from an acute shortage of liquidity since late 2021 when the Evergrande Group collapsed, and its collapse caused a series of debt defaults. Bloomberg even reported today that the Chinese real estate giant, China Evergrande, had applied for protection from creditors under Chapter 15 of the law in New York, where the company, which defaulted on its debt two years ago, aims from this move to protect its assets in America while it works on a deal to restructure its debt elsewhere, according to the agency.
• Finally, the Chinese economy received a second blow from the real estate sector, following the real estate development giant “Country Garden” revealed losses expected to reach seven and a half billion dollars in six months.
• Concerns regarding the faltering real estate sector prompted international banks to reduce the growth forecasts of the Chinese economy for this year.
• Morgan Stanley expected China’s GDP to grow 4.7 percent, down from its previous forecast of 5 percent growth, and cut its forecast for 2024 GDP growth to 4.2 percent from 4.5 percent.
• JP Morgan cut its growth forecast to 4.8 percent from 5 percent, while Barclays cut the forecast to 4.5 percent.
• These banks attributed their new expectations for the growth of the Chinese economy to the deterioration of the housing market.
• While Beijing set the target growth for the country’s economy this year by regarding five percent.
Real estate has historically been the engine of growth
In his interview with “Sky News Arabia Economy”, Tariq Al-Rifai, CEO of the “Chrome Center for Strategic Studies”, says: “China faces a major problem in the real estate sector, which is one of the largest sectors in the country. About three decades in addition to the industrial sector, which is currently in a stage of contraction.
Al-Rifai explains, “The Chinese government is trying to control growth in the real estate sector, with some companies defaulting on paying their debts, such as the two giant companies, “Evergrande” and “Country Garden.” Even some small companies declared bankruptcy. From bankruptcy, which means that China is facing a major problem that represents a burden on the growth of its economy during the coming period.
Loss of investor confidence in the real estate sector
The CEO of the “Chrome Center for Strategic Studies” explains that the main dilemma that resulted from this crisis lies in the Chinese investor’s loss of confidence in the real estate sector, which the government must realize, because many Chinese individual investors use real estate as a means of investment and consider it the best way to save, unlike American and European investors who invest in money markets as a long-term investment.
Al-Rifai noted that the faltering of the real estate sector led to a slowdown in investment in this sector, which in turn led to a decline in real estate prices in some cities, which accelerated the slowdown in demand for these investments, most of which constitute apartments under construction.
The solution to the real estate bubble burst
Al-Rifai believes that the best solution to solve this problem is for the government to allow this real estate bubble to burst and thus solve the crisis itself, because government incentives are not a permanent solution, especially since the debts of real estate companies are large and companies do not have the ability to pay, pointing out that individual investors are beginning to feel this. In fact, at the same time, they also do not have liquidity due to the decline in real estate prices, and therefore Chinese banks are not ready to give additional loans and mortgages.
The real estate sector’s faltering is linked to the growth of oil demand
Regarding the extent to which the real estate sector’s failure is related to the growth in demand for oil and its impact on the ability of the Chinese economy and the achievement of its growth targets, the international energy consultant Amer Al-Shobaki says: “70 percent of the volume of global oil demand growth comes from China, and it is expected that the demand for oil will grow in the world.” By 2.2 million barrels per day, according to the International Energy Agency in the latest report, of which 1.5 million barrels will come from China this year, and this is due to previous expectations that China’s economy will grow by five percent in 2023.
However, international banks lowered growth forecasts for the second largest economy in the world, including Buckleys, who reduced the growth rate from 4.9 percent to 4.5 percent, and J. with me. Morgan and Morgan Stanley fell from 5 percent to 4.8 percent and 4.7 percent, respectively, which means that oil demand growth in China will decline, according to Al-Shobaki.
A new blow to the Chinese real estate market
In his speech to the “Sky News Arabia Economy” website, the international energy consultant indicates the great importance of the Chinese real estate sector, as it represents regarding 20 percent of the size of the country’s economy, and if spending on building supplies of steel, copper, etc. is added, the sector’s share rises to 35 percent, and with the crisis The new industry witnessed by the giant Chinese real estate company “Country Garden”, doubts regarding the expectations of economic growth are justified, and this crisis might affect the growth of oil demand and reduce it from 1.5 million barrels to 1.2 million barrels per day.
The real estate crisis pushes further cuts in economic activity
Al-Shoubaki clarifies that “the real estate sector crisis will cause other obstacles to the country’s economy by forcing many families to postpone purchases of homes as well as cars and large commodities, which in turn will lead to a further reduction in economic activity. For example, car sales fell to 2.6 percent last July from The originally low level was in July of the year 2022, when China was implementing a zero Covid policy during that period, which confirms the clear impact of the real estate sector crisis on all sectors in China.
Despite this, there is a great possibility that China will overcome this crisis and the Chinese Central Bank contains the current real estate crisis, but doubts remain regarding the tools that Beijing can use to maintain the balance between providing support to the housing market on the one hand and keeping debt under control on the other hand, according to What Shobaki said.
China launches a comprehensive plan to support economic recovery
1692439221
#impact #real #estate #sectors #failure #recovery #Chinese #economy