The Chinese economy is shaking. China’s largest property developer, Country Market, warned it is on the verge of default this week. The company reported a loss of $7 billion so far this year, and it is part of a broader real estate crisis in China, which in turn is merely one facet of a major economic crisis in Asia.
In August, Evergrande, another mega developer in China, filed for bankruptcy in New York. Readers might recall the 2021 crisis when Evergrande went into default. Although Evergrande’s default was larger, the timing for Country Market is worse. China is facing economic crisis on all fronts.
The property sector accounts for about a quarter of China’s economic activity and two-thirds of its household wealth.
Following China ending its “zero COVID policy,” the government anticipated consumers to fuel the markets and bring it back to life. Unfortunately, that has not happened. Instead, consumers held on to their money, fearful of what would come next. That led to growing defaults and economic decline across the massive Asian nation.
If the Chinese economy stumbles, the world will feel the fall. According to The Economist, China consumes a fifth of the world’s oil, half of its refined copper, nickel, and zinc, and more than three-fifths of its iron ore. Slowdowns in China’s property sector mean a slowdown for the globe’s commodity exporters.
In 2021, 200 of the biggest multinationals in the US, Japan, and Europe relied upon 13% of their sales in China.
President Biden called China’s economy a “ticking time bomb.”
Global investors have yanked $10 billion out of the country’s stock markets. Exporters throughout East Asia have seen a decline in trade for the first time in two years because the Chinese are not buying. This year, Chinese imports from Africa and Asia have been down 14%. Companies from Nike to Caterpillar have reported hits to their earnings targets due to the Chinese slowdown.
In July, government figures showed that unemployment for workers between 16 and 25 had reached 21.3%.
Amid this economic crisis, the government of China is proving incapable of securing its people or keeping its promises. Following three years of pandemic, the worst might still lie ahead for China as social unrest and frustration finally boil over against a government that has often proved willing to hold a hard line.