Surging real estate prices fueled by ongoing credit expansion are forcing the Chinese government to choose between deflating the housing market and slowing growth. None of its options are ideal as they all present consequences that will further strain some aspect of the Chinese economy and, therefore, the stability of the country’s political system. To understand the tradeoffs the government faces, and the potential fallout from any missteps, this Deep Dive will examine the interrelation between the real estate market and GDP growth, debt growth and Chinese support of state-owned entities. It will also examine the policy tools available to the central government, along with the economic and political repercussions of these tools.
China has relied heavily on the real estate market to support growth, resulting in surging housing prices, an oversupply of housing and dependence on construction companies as politically important entities to provide jobs.