ReutersA shopping center in the Chinese capital Beijing
NOS Nieuws•vandaag, 14:39
Sjoerd den Daas
Sjoerd den Daas
Major Chinese real estate companies don’t have enough money to pay bills. In several places in the country, apartment complexes cannot be completed. Consumers are keeping their fingers crossed, and things are also booming on the Chinese stock markets. Yet the International Monetary Fund is raising growth expectations for the Chinese economy. The IMF now assumes that the economy will grow by 5.4 percent this year.
“Growth was stronger than expected, especially in the third quarter,” says Gita Gopinath in the Statesman Hall in one of the luxury hotels in Beijing’s business district. The deputy chairman of the IMF and her team have just completed their ‘Article 4 consultation’, in which each country submits an annual report. “The upward adjustment is also a result of supportive government policies that were recently announced.”
Beijing recently announced that it is allocating 1,000 billion renminbi (128 billion euros) to help local governments. This buys time for the economic headwind in the country. This is mainly related to the problems in the real estate market. Local governments in China mainly depend on the sale of land for their income. Now that house prices are falling and there is less demand for real estate, that source of financing has largely dried up.
Construction workers may not be paid
Real estate companies are short on cash and have difficulty delivering existing projects on time. On the outskirts of Jiaxing, about an hour and a half drive from Shanghai, the troubled real estate giant Country Garden is building the Star Mansion. The beds are being planted, construction workers are putting the finishing touches to the cabling. “Almost ready to be delivered,” says one of the employees on site with conviction.
It is still unclear whether he and his colleagues will receive their salaries. In several places in the country, subcontractors were able to earn their money. “I’m just getting started. I’ll know more at the end of the month, that’s when this project should be finished.” Here in Jiaxing, subcontractors can hope for their wages, buyers for their apartments. On the other side of ‘Hangzhou Bay’, that hope has disappeared. Here the construction workers have disappeared before the project is even completed.
The Legends of the South China Sea, another real estate project of Country Garden, turned out to be a myth. “Construction is at a standstill,” says one of the neighbors. She is walking her dog among the overgrown weeds. Did the money run out? “I don’t know exactly. But the economy is in a depression,” she says. One crane can still be seen on the site, but it does not move. An abandoned bulldozer acts as a support pillar for the steel wall that must protect the complex against intruders.
The problems in the real estate market are affecting other parts of the economy, including the big cities. The time when restaurant visitors in Beijing had to queue for a table is over in many places. Those who do go out spend less, entrepreneurs complain. Something that coffee chain Starbucks also notices. In the past quarter, 8 percent more people visited due to expansions, but on average they spent 3 percent less.
Falling house prices do not invite more consumption anyway. Nor is the uncertainty whether apartments that have already been paid for can be delivered. Gopinath believes that non-viable project developers should be allowed to go bankrupt. “But completing real estate projects can increase sentiment, with the central government also playing a role.” Because consumption must increase, according to the IMF.
“Growth must come less from investment and more from consumer spending,” said IMF Deputy Chairman Gopinath, urging Beijing to build a stronger social safety net. “So that Chinese households have to keep less savings.” For large healthcare expenses, for example, or old age provision. Party boss Xi Jinping previously indicated that he was not in favor of this. In party mouthpiece Qiushi he wrote that it would lead to “lazy people”.
“He thinks people are better off if they struggle,” says Barry Naughton, a sinologist and economist at the University of California, San Diego. “If they have a harder life where they have to overcome things.” Too much spending freedom leads to less control for Xi and his communist party, is his view. “That’s why he’s less enthusiastic about people getting rich than he is about eradicating poverty.”