One of the major differences between the United States and China in the current trade conflict is that the Chinese economy is ensnared in a long-term deleveraging crisis in its real estate markets.
The Chinese Real Estate Climate Index, released by China’s National Bureau of Statistics, stands at 92.78, well below its historical average of 99.47.
Such a low level shows just how much private sector firms in China need to do as they unwind the unsustainable debt built up during the property boom
One result is that the terms of trade in China’s negotiations with Washington have changed as the Chinese model of overinvestment in manufacturing, property and infrastructure has ended.
China’s economy is caught in what economists call a middle-income growth trap and has gone back to its old playbook of exporting its oversupply o cheap goods to global markets. But unlike previous decades, trading partners are not going along.
Read more of RSM’s insights on the economy and the middle market.
We are closely monitoring the condition of the Chinese commercial and residential real estate markets, as well as the condition of its domestic financial sector.
Those conditions will provide global investors with an idea of whether China will either push back on Washington’s harder line or seek to cut a deal so it can focus on developing a domestically oriented economic model.
