Xi's Great Moderation

The Chinese leader wants to downsize the real estate sector, even if it means sacrificing economic growth

- Tom Hancock and Enda Curran, with Cynthia Li and Ailing Tan

China’s economy is slowing to levels not seen since 1990. But that’s a price President Xi Jinping seems willing to pay to reduce its dependence on the property sector.

Under the mantra of “housing is for living, not for speculation,” Beijing has rolled out a host of policies in recent months to rebalance the economy and avoid a housing bubble. The government squeeze looks set to linger into next year and beyond, which has prompted banks such as Barclays, Goldman Sachs, and Nomura in recent weeks to pare their 2022 growth forecasts for China to below 5%. Excluding the first year of the pandemic, that would be the country’s weakest performance in more than three decades.

It’s a big step-down from pre-Covid rates that were closer to 7%. And because China is the world’s second-biggest economy, the effects will be felt far and wide, from mines in Australia and soybean farms in Brazil to the headquarters of Apple Inc., Volkswagen AG, and other companies. Nomura Holdings Inc.’s chief economist, Rob Subbaraman, forecasts China’s economy will expand by just 4.3% next year, which will knock 0.5 percentage points from global growth. Larry Hu, chief China economist at Macquarie Group Ltd., says, “China’s property slowdown is a major headwind to the global economy, because it is likely to be the biggest headwind to the Chinese economy next year.”