China represents something of a complicated market, and certainly with geopolitics in its current axis, tensions between China and the west have been building for some time.
That being said, China’s suppression strategy during the pandemic – as harsh and inhumane as it may have been – did a remarkably good job at keeping the virus at bay and, ultimately, shielded their economy fairly well.
China has been, for some time now, the world’s fastest growing economy and many have been expecting them to take over as the world’s largest economy some time before the end of the century, if not earlier.
China has a different economic system to the west, in that it’s described as a ‘socialist market economy’, but realistically this means that the state does a lot of central planning in 5-year plans for industry, whilst allowing private market and foreign enterprise.
With that in mind, it’s a little difficult for foreigners to get their head around the structure of the Chinese economy, but one thing seems to be apparent – the Chinese housing market appears to be in some trouble.
Chinese house market
China’s largest house builder, Evergrande, looks as though it may be about to default against its debts following moves by the Chinese government to curb rising property prices.
The government intervention caused property sales to plummet by 21% almost overnight meaning the house developer was unable to service its nearly $300 billion debt, making a default or bankruptcy likely.
Reporting in Forbes, Nick Sargen commented “My own take is a selloff of China’s property market would not play out the same as the U.S. housing market bust in 2007-2009. However, it would have major repercussions for China’s economy. The reason: Property represented two thirds of China’s household assets in 2019 compared with about one quarter for U.S households. Moreover, the latest estimate for China is higher today at 78% owing to rapid price appreciation in the past two years.”
Contagion into other world markets appears unlikely, and it appears to be largely contained to China for now.
UK investors
Moving on to UK investors, then, and we can see that the UK market already has one of the world’s highest amounts of inward investment from China.
If Chinese property investors, and other foreign investors, are looking into the abyss in China then it’s highly likely that those same investors are going to be casting an envious eye over into the UK market.
With the housing market here very well insulated and very much still in a boom phase following the pandemic it’s highly likely that a glut of foreign investment could be on the way driving prices and rental demands up.
That is, of course, a good thing for those with existing assets and properties, however, for those with the available means to continue to invest, a good piece of advice would be to push forward with those plans sooner rather than later before this further investment lands.