The problem isn’t only a demographic Armageddon that stares China in the face with the country’s population estimated to halve within two generations. The more immediate problem is that Chinese consumers aren’t buying enough of anything. Domestic production vastly outstrips consumption.
The result: empty townships, shuttered malls and a paralysed stock market. In what appears to be an emergency measure, Beijing recently cut interest rates on mortgages worth $5 trillion (Rs 418 lakh crore) in an effort to rescue the real estate sector that has been reeling for years after the collapse of several large realty companies.
The wealth of most Chinese citizens is locked up in real estate and equity. With both property and stock prices caught in a downward spiral, Chinese consumers are spending less on consumer goods, travel and discretionary purchases.
China continues to manufacture at a frenetic pace, worsening the supply-demand mismatch. As The Wall Street Journal put it: “China’s economy is unusual. Whereas consumers contribute 50% to 75% of gross domestic product in other major economies, in China they account for 40%. Investment, such as in property, infrastructure and factories, and exports provide most of the rest. Lately, the low consumption has become a headwind to China’s growth because property investment, once a major component of demand, has collapsed.
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