A recent Bloomberg article had a headline that caught my eye: Wall Street Snubs China for India in a Historic Markets Shift. Often, but not always, stock market movements are indicative of what is happening in an economy. In today’s episode, let’s see what has been happening in China on various economic fronts. Chinese stock market indices have fallen given concerns around the economy. Japanese newspaper Nikkei reported that on February 5, the Shanghai Composite Index touched its lowest close in four years. In the week ended February 2, the index fell 6.2% in its biggest weekly loss since October 2018. China’s biggest real estate developer, Evergrande, which was in the news recently for having too little funds to pay too much debt, went into insolvency a fortnight ago. In a sector that accounts for about 20% of the world's second-largest economy, such a large entity going into insolvency sounds alarming. But it does look like the bad news has been on the horizon and has finally hit the industry. The IMF notes in a recent blog that the reliance on real estate for economic growth has been accompanied by the buildup of significant risks. The Fund says that home prices became significantly stretched relative to household incomes in the decade before the pandemic, in part because consumers preferred to invest their considerable savings in real estate given the scarcity of attractive alternative savings options. CNN estimates that more than 2/3rds of household savings are tied to the real estate sector. Why so? Expectations of continued increases in home and land prices allowed property developers to borrow rapidly, with land sales providing crucial revenue for local governments, according to the IMF. However, recognising the bubble and needing to step in the Chinese government moved in 2020 to make it harder for developers to borrow. Since then, many of them have fallen into insolvency, unable to pay debts. News of insolvency of the sector’s poster-child, Evergrande, has rattled industry. One consequence of the government clamp-down is that house sales have fallen amid homebuyer concerns that developers lack sufficient financing to complete projects and that prices will decline in the future. What will exacerbate housing sector woes is that the coming years demand will eventually dip. One reason is that the country will see fewer younger folk seeking new housing. And why is that? Not only because of poor buyer confidence but also because China’s population is ageing. Going forward, there would be fewer and fewer young people with a lot of years of productivity left in their working lives to seek new housing. WHO estimates that by 2019, there were 254 million older people aged 60 and over, and 176 million older people aged 65 and over. By 2040, an estimated 402 million people (28% of the total population) will be over the age of 60. Also, the country’s total population is dipping. In 2023, the count dipped for the second year in succession and this time by about 2 million. An ageing population is always a problem for a country’s government? Why? You have fewer people to add to economic productivity and increasingly more senior citizens to take care of with higher expenses in the form of healthcare expenditure, pensions, and the like. On another economic front, China’s debt burden too has increased. Chinese stock market indices have fallen given concerns around the economy. Japanese newspaper Nikkei reported that on February 5, the Shanghai Composite Index touched its lowest close in four years. In the week ended February 2, the index fell 6.2% in its biggest weekly loss since October 2018. China’s biggest real estate developer, Evergrande, which was in the news recently for having too little funds to pay too much debt, went into insolvency a fortnight ago. In a sector that accounts for about 20% of the world's second-largest economy, such a large entity going into insolvency sounds alarming. But it does look like the bad news has been on the horizon and has finally hit the industry. The IMF notes in a recent blog that the reliance on real estate for economic growth has been accompanied by the buildup of significant risks. The Fund says that home prices became significantly stretched relative to household incomes in the decade before the pandemic, in part because consumers preferred to invest their considerable savings in real estate given the scarcity of attractive alternative savings options. Script and presentation: K. Bharat Kumar Production: Shibu Narayan Chapters: 00:00 - 00:34 - Intro 00:35 - 03:53 - Big dip in real estate sector 03:54 - 04:52 - China's ageing population 04:53 - 05:25 - China's debt burden 05:26 - 07:23 - Economic growth 07:24 - 08:59 - Tensions with US 09:00 - 09:30 - Deflation 09:31 - 10:11 - Conclusion 10:12 - 10:25 - Did you know? 10:26 - 11:24 - Quiz question