Posts   |   Jamil Anderlini on China real estate and the global economy

February 25, 2016
Jamil Anderlini on China real estate and the global economy

Jamil Anderlini has been producing some of the best reporting on China’s economy over the past several years. The FT’s long-time China-based correspondent now has an opinion piece that everyone interested in the fate of the global economy should read. In the Chinese chronicle of a crash foretold, he draws a clear — and important — line between China’s real estate slowdown and possibly even collapse and the fate of the global economy. He uses the now-defunct Sky City skyscraper, once envisioned as the tallest building in the world and now a pile of foundations that “lie submerged in a makeshift fish farming pond” as a sort of reverse skyscraper curse — the uncanny sharp downturns that come shortly after creation of the world’s tallest buildings.

Because of China’s insatiable demand, driven by investment-led growth, China had been — to borrow a metaphor from another FT columnist, Gideon Rachman — like a speedboat carrying water skiers (commodities producers and others) in its wake. When the speedboat slows, the water skiers go wobbly, and fall.

Thus, as Anderlini writes, “the fate of everything from Hong Kong financial institutions to German carmakers to Australian miners is now in the hands of homebuyers in places like Changsha, the city where Sky City was supposed to be built.”

“China’s economy is extraordinarily reliant on investment,” Anderlini writes, “which accounts for nearly half of the country’s gross domestic product. But slowing investment in Chinese real estate in the past two years has contributed to a collapse in global prices of commodities and declining growth in raw material exporters such as Australia, Brazil, South Africa and Indonesia.”

Anderlini makes a strong case that we all need to be watching the China real estate market very, very carefully. It will mean more to the fate of the global economy than gyrations in Chinese equities.

This is a sobering must-read.