THE ONGOING mess in China’s real estate sector may soon change China’s economic role in the world, and that transition may affect the products we buy, and individual economies as well.
For years, China’s economic growth was led by home purchases. But now with Evergrande and other Chinese real estate companies in a state of near bankruptcy, the Chinese economy will have to restructure its economy, something that could drastically reduce its economic growth. Add political tensions with Western nations and the situation becomes even more difficult for the Chinese.
For years, China has been the prime destination for companies that wanted to offshore their manufacturing. Phones, cars, toys, electronic and various types of consumer goods were offshored to China because it made them cheaper. However, that has begun to change in recent years, with companies moving their operations to other countries.
The Chinese didn’t help the situation by saber rattling (e.g. Australia, Taiwan and Japan), and giving foreign investors another reason to leave, on top of the economic one.
For the People’s Republic of China (PRC), these things will mean economic restructuring, most likely at a slow and steady pace, because reduced economic growth means political suicide.
But economic restructuring is inevitable, in my opinion. Xi Jinping has made it clear that much. Now, whether they can do this successfully or not is still a big unknown.
Now, how does this affect us?
First, expect a change in global economic growth. If China has trouble transitioning to a new economic model, it will have serious ramifications for us here in Asia.
Second, the economic situation may force the PRC’s leadership towards certain political measures to offset the economic woes that may arise as a result of going from a real estate growth model.
And finally, expect a change in the cost of goods like iPhones and electronics, thanks largely to corporations shifting their manufacturing base outside China. The economic shakeup in the PRC is already bringing up a lot of problems. The question now is, how serious those problems are going to be./PN
