China’s traditional approach of boosting spending on infrastructure and real estate to address economic troubles is proving ineffective due to heavy debt loads. Amid deep economic uncertainty, policymakers are attempting to draw on their crisis playbook, but with little success. Demand for borrowing has dwindled, hampering the effectiveness of looser lending policies. The construction and sale of new homes have stalled, leading to defaults by real estate developers and hundreds of unfinished apartments. Companies are reluctant to borrow money for expansion as sales decline, and local governments are struggling with high levels of debt. Western economists argue that China should reduce its high rates of savings and investment and encourage consumer spending to address economic woes. However, China has not made significant efforts to strengthen its social safety net, leaving households with a need to save more. Direct spending initiatives, such as issuing coupons for free or discounted services to stimulate spending, have been opposed within the Chinese government. Real estate is at the core of China’s current economic troubles, representing a significant portion of the country’s GDP and household savings. The previous surge in borrowing in 2016 resulted in a frenzy of apartment construction, but oversupply has caused apartment values to decrease and rental income to decline. With the demand for new apartments plummeting, it is unlikely that measures similar to those taken in 2016 will revive the real estate market quickly.
– The New York Times