During a recent episode of NTD’s “Pinnacle View,” experts dissected the alarming economic conditions in China, focusing on the collapse of the real estate sector.
Initial hopes for a swift post-COVID-19-pandemic recovery have led to a deepening economic downturn, especially pronounced in major cities such as Guangzhou, Shenzhen, Shanghai, and Beijing, over the past few months.
The sustained decline in property values across first-tier cities is taking a heavy toll on the middle class, according to independent TV producer Li Jun.
Sales have dwindled nationwide, punctuated by frequent financial defaults. In Guangzhou, for instance, a land plot in the prestigious Guangzhou Financial City East recently failed to find buyers even after listing—a stark contrast to previous market dynamism. Similarly, Shenzhen managed to sell only one land plot this year—again, a stark departure from its usual robust sales figures.
Luxury housing markets, once stable and exorbitantly priced in cities like Shanghai, have seen their values plummet by up to 30 percent. Outlying areas such as Qingyuan in Guangzhou and Yanjiao in Beijing have experienced even sharper declines, with prices dropping by as much as 86 percent and 72 percent, respectively.
Mr. Cai emphasized that while official figures may not paint the full picture, the drastic reduction in personal mortgages and deposits underscores a dire situation requiring urgent intervention from the Chinese Communist Party (CCP).
Despite potential short-term successes in specific regions, systemic issues rooted in decades of over-leveraging persist, rendering broad-scale recovery efforts uncertain.
According to Mr. Cai, the meteoric rise in property prices in Guangzhou and Shenzhen since 2015 was fueled by local governments overly reliant on real estate to bolster gross domestic product amid economic uncertainty elsewhere.
Crisis Looms for Middle-Class Homeowners
In a sobering discussion on NTD’s “Pinnacle View,” Guo Jun, editor-in-chief of The Epoch Times’ Hong Kong edition, said a rapid escalation in home purchases, particularly during the peak of real estate prices, has left approximately half of Chinese homeowners vulnerable.With housing prices plummeting, an estimated 40 percent decline threatens to push 120 million homeowners into negative equity, especially those who bought homes after 2018. For many, the prospect of spending decades paying off mortgages that exceed the value of their homes looms large.
Ms. Guo warned that while a potential recovery in housing prices within the next two years could alleviate some pressures, sustained low prices would deepen economic woes. The scenario paints a grim picture of prolonged financial strain for a substantial portion of the population, potentially spanning the length of an entire working life.
Mr. Cai underscored that “the wealth of most middle-class Chinese families came from real estate.”
With declining property values, a significant segment of this demographic is at risk of erosion. He noted that the middle class has historically been a linchpin of China’s economic activity, driving domestic consumption and supporting numerous ancillary industries linked to real estate.
The ripple effects of the real estate downturn extend far beyond individual homeowners, affecting more than 100 related industries from renovations to appliance sales, thereby influencing nearly every household in China.
Mr. Cai emphasized that China’s exports also face challenges because of escalating tariffs imposed by major trading partners such as the United States and the European Union. If China’s exports take a hit in the second half of the year, the overall economy, including real estate, will suffer more. Producing more goods won’t matter if there’s no demand, highlighting the issue of overcapacity.
Looking to the future, Mr. Cai mentioned that “many are pinning hopes on the Third Plenary Session in July for major policy shifts. However, significant measures would have been taken already if they were available.”
Potential CCP Shift to Wartime Economy
During a candid discussion on “Pinnacle View,” Ms. Guo raised concerns about the CCP’s response to the escalating economic crisis. Emphasizing a potential move toward a wartime economy, she highlighted the CCP’s recent measures to consolidate party control, including establishing party branches in private enterprises and even among delivery workers—a move she deemed ultimately futile in addressing systemic economic challenges.Ms. Guo pointed to the core issue: the impending collapse of China’s centrally controlled economic model, shaped over the past two decades, in the wake of the real estate downturn. Local debts have ballooned to $5.5 trillion, with total liabilities, including urban investment bonds, exceeding $13.8 trillion—an unsustainable burden for the central government.
Drawing parallels to China’s 1980s reforms that initially empowered rural areas with financial autonomy, Ms. Guo said decentralization may be the only viable solution to address mounting local financial crises.
She speculated on a strategic aspect behind the CCP’s seemingly disjointed actions, suggesting that it may be preparing for a wartime economy.
“Such a move would enable the CCP to consolidate domestic resources under central control, potentially leveraging this strength as geopolitical leverage on the global stage,” Ms. Guo said.
She suggested that what might appear as a strategic misstep or incompetence could be calculated maneuvers aimed at reconfiguring China’s economic and political landscape.
