1/8
In a piece for Caixin, Wu Ge, chief economist at Changjiang Securities, writes: "The economic fallout from the real estate slump has been masked in part by strong overseas demand for Chinese goods."
caixinglobal.com/2025-05-29/com…
In a piece for Caixin, Wu Ge, chief economist at Changjiang Securities, writes: "The economic fallout from the real estate slump has been masked in part by strong overseas demand for Chinese goods."
caixinglobal.com/2025-05-29/com…
2/8
"If foreign demand takes a turn for the worse," he continues, "it will become clear just how important real estate is to stabilizing China’s economy."
He's right, and he makes a very important point.
"If foreign demand takes a turn for the worse," he continues, "it will become clear just how important real estate is to stabilizing China’s economy."
He's right, and he makes a very important point.
3/8
In 2021-22 China's property sector, after reaching some of the highest levels in history, began such an extended collapse that in any other economy it would have set off much lower growth and even recession. But there was no associated slowdown in China's GDP growth rate.
In 2021-22 China's property sector, after reaching some of the highest levels in history, began such an extended collapse that in any other economy it would have set off much lower growth and even recession. But there was no associated slowdown in China's GDP growth rate.
4/8
Why? Mainly because, as Wu indirectly suggests, China was able to externalize the cost of the slowdown to its trade partners. As property investment in China dropped sharply, subtracting from GDP growth, it was balanced by a surge in manufacturing investment.
Why? Mainly because, as Wu indirectly suggests, China was able to externalize the cost of the slowdown to its trade partners. As property investment in China dropped sharply, subtracting from GDP growth, it was balanced by a surge in manufacturing investment.
5/8
In this way there was no reduction in China's total investment or its total GDP growth as the contribution to GDP growth from the surge in manufacturing investment balanced the subtraction from GDP growth of the drop in property investment.
In this way there was no reduction in China's total investment or its total GDP growth as the contribution to GDP growth from the surge in manufacturing investment balanced the subtraction from GDP growth of the drop in property investment.
6/8
The problem, of course, was Chinese manufacturers were already producing more than China could absorb domestically, and so the surge in manufacturing could only be resolved by a surge in the Chinese trade surplus.
The problem, of course, was Chinese manufacturers were already producing more than China could absorb domestically, and so the surge in manufacturing could only be resolved by a surge in the Chinese trade surplus.
7/8
But while this made sense for the Chinese economy, it didn't make sense for China's trade partners, who were forced to absorb the demand contraction set off by China's property bust in the form of a surging collective trade deficit.
But while this made sense for the Chinese economy, it didn't make sense for China's trade partners, who were forced to absorb the demand contraction set off by China's property bust in the form of a surging collective trade deficit.
8/8
That's what Wu means when he says "If foreign demand takes a turn for the worse, it will become clear just how important real estate is to stabilizing China’s economy." China can only externalize the cost of the property bust if the rest of the world absorbs the surpluses.
That's what Wu means when he says "If foreign demand takes a turn for the worse, it will become clear just how important real estate is to stabilizing China’s economy." China can only externalize the cost of the property bust if the rest of the world absorbs the surpluses.
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