Joerg Wuttke, former President of the EU Chamber of Commerce in China, on the country’s economic prospects, the rising trade conflict with the EU and the question of who Beijing would prefer to see in the White House.
China’s
economy has repeatedly disappointed expectations since the end of the
Covid pandemic. Consumption is sluggish, the property crisis is a burden
and attempts to achieve growth through exports are being met with
punitive tariffs from the rest of the world.
Few
Western observers know the world’s second-largest economy better than
Joerg Wuttke. In an in-depth conversation with The Market NZZ, the
long-serving former President of the EU Chamber of Commerce in Beijing
talks about China's growth prospects, the problem of overcapacity in the
country and explains who calls the shots when it comes to economic
policy.
«A
lot of rich Chinese are moving away. They are not leaving China for
good, but they are building up a foothold, just in case. Dubai, Abu
Dhabi, Singapore and Japan are popular»: Joerg Wuttke.
China’s economy can't seem to gain any traction. What’s going on?
The
problem has been building up over years, it was just partially masked
during the years of the Covid pandemic. The property crisis continues to
be the biggest drag. It had been looming for a long time because it was
obvious that property prices were significantly inflated. In third- and
fourth-tier cities and in structurally weak provinces in the north-east
or south-west, so much has been built that there is an overstock of
five to seven years. No housing will need to be built for years to come.
All in all, the property sector accounted for around 25% of economic
output during the boom, which is not so easy to absorb. There is also a
special feature of China: everything the government announces with big
plans ends up creating overcapacity at some point. The best current
example is the automotive sector, where around 140 suppliers are
fighting each other. This is eroding the profitability of companies and
people are struggling to survive.
The property sector has been in a downturn for three years. Has the bottom been reached?
The
rate of decline is slowing down. In first-tier cities such as Beijing,
property prices have corrected by 10 to 20%, in lower-tier cities such
as Harbin probably by around 50%. This is affecting the mood of the
population, which is already shrinking and ageing at a rapid pace.
People realise that their children and grandchildren may not have the
jobs to see them through retirement. People have become cautious. For
years, they thought they could buy a flat and sell it later at a higher
price. And now they are suddenly realising that they have lost 30%. The
government should do more to counter this, it is not doing a good enough
job.
The
government has announced various steps to stabilise the market. Local
governments are to buy surplus property and take it off the market. Will
that help?
The
wrong actors are being addressed because local governments are
extremely cash-strapped. In the past, they have earned 30 to 40% of
their income from selling land, and now they are suddenly being told to
buy back real estate projects to stabilise the developers. Whit what
money? A lot is happening behind the scenes, though. Beijing has
financially stabilised twelve ailing provinces, but has also imposed a
set of obligations on them that is similar to those imposed by the
International Monetary Fund on Greece during the euro crisis. The
problem is the mood. There is no point in the government lowering
mortgage rates if I don’t know whether the apartment I have bought will
ever be completed or if I have to assume that prices will continue to
fall. There are 90 million empty housing units in the country, which is a
huge oversupply. Beijing should pull a Mario Draghi with regard to the
completion of the paid-for flats: Whatever it takes, you will get it.
Should the central government do more to support consumers?
Restaurants
are full, people are travelling domestically again. There is some
pent-up demand from the time of the pandemic. But we are also seeing a
trading down, people are no longer buying the absolute top-end brands,
but rather in the mid-price segment. The automotive market has reached a
plateau following the explosive demand for electric vehicles. So
consumption is not bad across the board, but the problem is oversupply
and price erosion. We have deflation in many segments here. People must
not start assuming that everything will be cheaper again next month and
therefore hold back on consumption. Consumption is also restrained when
people see that their own family members are losing their jobs. There
are many unemployed people in rural areas who have returned to their
villages from the big construction sites. Pessimism, which has never
really been an issue in the last thirty years, has spread in the last
twelve months.
