Can a slowing China navigate round a global storm of debt and asset bubble trouble?
Andrew Leung says that while China appears to be managing well its economic transition to a 'new normal', there are global headwinds to beware of - not least the debt troubles and asset bubbles
President Xi Jinping has emphasised that in a "new normal" of slower growth, it is quality that counts, even though at around 7 per cent annual growth, China's economy would still lead the world. Evidence of economic restructuring emerged last year when consumption for the first three quarters of the year overtook investment as the main contributor to growth. Besides, at 46.7 per cent of the economy, services surpassed the share of manufacturing. Meanwhile, newly registered enterprises increased by 60 per cent in the first three quarters of the year.
Nevertheless, the reality is that China is braced for headwinds, both inside the country and outside.
Whether China's perceived housing bubble will burst was examined last August by the Peterson Institute for International Economics. While noting that China's housing market is sputtering, the research paper concluded that any comparison with Dubai or Japan is wide of the mark. This is because a market did not exist before 1998, as all housing was government-owned.
Following liberalisation, the market was inundated with demand from a surging middle class. However, mortgage gearing has stayed low with down payments of at least 30 per cent. With some exceptions, affordability ratios remain reasonably comfortable as both rural and urban incomes have jumped in recent decades.
Speculation is still rife and many properties remain empty. Nevertheless, the situation is likely to improve. More than 200 million people are expected to move from villages to cities by 2023. Game-changing reforms announced at the party's third plenum are conferring urban household registration ( hukou) on rural migrants, entitling them to basic social provisions including health care and education.
Meanwhile, farmers are being allowed to lease or mortgage their land, which will provide them with the resources to establish homes in cities. The process will take time and images of new ghost towns and shopping malls may recur. But let's not forget similar images when Shenzhen and Pudong were first built over paddy fields.