30 May 2024

Once again, Western media is suggesting that the Chinese economy is failing, and global market sentiment is already pulling the strings of influence on several China-related assets, but is the Chinese economy in trouble or is it simply propaganda intended to lead Asian market investors back to the West?

Let’s dig a little deeper into the claims of China’s weakening economy and see if the current pessimistic headlines will be here today… gone tomorrow.

Real estate crisis

Housing is said to be a strong indicator of a country's health. According to a report by the South China Morning Post, China Evergrande Group shares plunged by 79% after a 17-month trading suspension. The decline of China Evergrande Group signals a potential housing crisis in China, reflecting systemic issues like overbuilding, regulatory debt limits, and a vast housing surplus.

This sharp decline erased a substantial amount from its market capitalization as investors reacted to the company’s ongoing debt restructuring process. Evergrande is a property rock from which the entire sector depends, so when Evergrande struggles, you can be sure it’s not a small splash in the housing pond but a tidal wave, affecting confidence and financial stability across the board.

China's real estate isn’t just a national issue; it’s a global one. The Great Recession of 2008/9 began with a housing bubble in the US, which cascaded over to world banks. It’s not inconceivable that the next global downturn could start in China, but that is truly speculation at this point.

Keep in mind that pre-COVID, China’s construction efforts looked a lot like a runaway train. Now that the dust has settled, we might be seeing a simple correction from the extreme rather than a systemic decline.