The pessimism is warranted. The first D hitting China - debt - is hardly a new phenomenon.
Home prices have fallen for 11 consecutive months, homebuyers are boycotting mortgage payments for unbuilt properties and more than 30 real estate companies have defaulted on international debt. The policy response has been rate cuts and a fiscal stimulus focused on easing liquidity for property developers and boosting funding for infrastructure.
Banks are being pushed to lend while demand for loans has plummeted. The fiscal measures to support infrastructure spending are unlikely to offset the property slump.The central government’s balance sheet is relatively clean, with a debt-to-GDP ratio of roughly 20 per cent. It could insist state-backed institutions lend to property developers and then bail them out, reducing the risk of cascading defaults.
So China must drive growth via consumption, rather than through real estate or investment. This will take time and require reducing national savings by establishing a social safety net with subsidies for healthcare, housing, education and transport.At the same time, the property sector’s drag on growth is intertwined with the other two D’s: Disease and drought.even as exposure to the virus has expanded to all 31 mainland provinces.