Comparison of Real Estate Bubbles in China and Japan, and Prospects for the Chinese Economy

三尾幸吉郎

4――Chinese Economic Outlook

Based on the comparison of the real estate bubbles between Japan and China, let's now look at the future of the Chinese economy.

In the main scenario, although the real estate bubble has not yet burst in major Chinese cities, housing inventories are currently accumulating, and the demand for housing is expected to continue declining. Therefore, the slump in the real estate industry is expected to depress the overall growth rate of the Chinese economy for an extended period. Furthermore, China is facing demographic challenges such as a declining birthrate and an aging population, and there is limited room for fiscal action. As a result, the economic growth rate is expected to gradually slow down and reach the 2% level in 10 years, aligning with that of developed countries. Each time China employs fiscal stimulus measures, its outstanding government debt (as a percentage of GDP) will increase, approaching the levels seen in Japan.

However, even if economic growth temporarily turns negative, it will likely be short-lived. In such a scenario, there is still some fiscal stimulus capacity available. China's outstanding government debt, including hidden debt, is currently around 110% of GDP, significantly lower than Japan's (Chart 24). Given that China's GDP per capita is only 1/6 of that of the United States, exports of new energy-related products such as electric vehicles and power batteries are expected to remain robust, and the information and communications services sector is expected to maintain double-digit growth through the utilization of artificial intelligence (AI), thus boosting the economic growth rate (Chart 25). Looking at Japan's economic growth rate after the bursting of its bubble (Chart 10), the decline was temporary, with an average annual increase of 1.3% in the 1990s.

Nevertheless, it is essential to be prepared for the risk of a hard landing in the real estate market. Mishandling of a bankrupt real estate developer could lead to social unrest, and a burst bubble in a major city like Shanghai could also result in financial instability at AMC. Therefore, the Chinese real estate market will continue to require careful attention.

[Chart -23]Goverment Dept Outstanding(end or 2022)/[Chart -24]Trends in China's Real Growth Rate

Please note: The data contained in this report has been obtained and processed from various sources, and its accuracy or safety cannot be guaranteed. The purpose of this publication is to provide information, and the opinions and forecasts contained herein do not solicit the conclusion or termination of any contract.

Comparison of Real Estate Bubbles in China and Japan, and Prospects for the Chinese Economy | ニッセイ基礎研究所