There are three reasons for the slowdown. A sharp rise in materials prices and a power shortage are to blame, first. The current situation of China’s wholesale price index rising to over 10 percentage points above the consumer price index is unprecedented. The second reason is the impact of the COVID-19 pandemic. Although the number of infected people in China is low compared with the U.S., Europe and Japan, Beijing’s “zero COVID” policy has affected the flow of people and economic activities. The third factor is the effects of government policy to rein in real estate investment. As real estate is linked to a variety of industrial sectors, the policy has affected construction, materials, furniture, consumer electronics and many other businesses. The People’s Bank of China pumped 1.2 trillion yuan ($188 billion) into the economy by cutting the reserve requirement ratio for banks. Materials prices have begun falling, while COVID-19 infections are under control. Although the property market was temporarily affected, demand remains stable.
The property market is important for China. The real estate sector is a major source of revenue for the government and local administrations, and accounts for a large share of bank lending. The problem with the real estate market was that Chinese were buying houses as if they were buying stocks. As China has no inheritance tax, parents can leave their homes fully to their children. Speculative investment therefore has increased. The government’s attempt to curb investment by saying that “houses are built to be lived in” is correct. The market has begun to adjust under government control, including the prevention of a sharp drop in prices. The government has many options, and the likelihood of the market spiraling out of control is small. There is stable demand for housing, and the market is supported by this, not speculation. The investment funds that used to go into real estate are starting to go into other industries that need capital, such as manufacturing. there are some differences between Chinese online platform companies and those in the U.S. The business of Chinese companies is the application of business models, and they do not have the innovative technological capabilities of Google or Amazon. After achieving rapid growth at low cost in China, where commercial services were still underdeveloped, these Chinese companies began to use their dominance to stifle the growth of other ventures and consumer interests, and to control the media. This is unhealthy for the economy. China’s retail market is growing at 7% to 9% annually. The U.S. market is growing at 3% to 4%. Retail sales in China are forecast to reach $10 trillion in 2027 whereas those in the U.S. are expected to fall short of $8 trillion.