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Will Take Quite a While to Fix China Property Market: Professor Pettis
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* 00:00[CC may contain inaccuracies] You've written about and thought about
China's economy for a very, very long
* 00:04time. I thought it was interesting with the
* 00:06passing of the question, there seem to be a lot of reflection on social
media
* 00:09about the development path and the reform path not taken.
* 00:14Do you see now even further centralisation and more see a nomics in
* 00:19the future? Well, I think the the the adjustment
* 00:24that China is facing is difficult enough that it probably couldn't have
been done
* 00:29without a significant centralisation of power.
* 00:32You know, one of the big questions that China really has to deal with is
very
* 00:38much a political question, and that is that if you're going to resolve
the debt
* 00:42and if you're going to increase the household share of GDP in order,
that
* 00:47consumption play a bigger role. Those costs have to be absorbed either
* 00:54by Beijing or by the local governments. And I would argue that it's
unlikely to
* 01:00be absorbed by Beijing and it is unwilling to be absorbed by the local
* 01:05government. So I would argue part of the
* 01:06centralisation process has been a way of dealing with what is going to
be a very
* 01:12contentious debate between local governments and the central government
* 01:17over the allocation of the costs. We've seen households take a hit from
* 01:22previous bouts of of of of, you know, growing pains, if you will.
* 01:26What is this going to be the case again when it comes to the property
sector?
* 01:30Can you can you even fix household and household wealth and confidence
without
* 01:35fixing the property market? Well, I hope you're wrong there, because
* 01:42I don't think I think it's going to take quite a while to fix the
property
* 01:45market. The property sector is still relatively
* 01:48very, very large and producing more than the economy can really absorb.
* 01:53And more importantly, prices are still on a comparable basis compared to
other
* 01:58countries. Compared historically are still
* 02:00extremely high. So I'm not I've never been very
* 02:04confident of the ability to stabilise the property market.
* 02:09I think we've got a ways to go before it bottoms out.
* 02:14Harry rejuvenate confidence then? Because, you know, I think there was
* 02:18talk about potentially, well, maybe direct payments to households could
be a
* 02:22way to kick start a virtuous cycle. Is it too late now?
* 02:25Is this just demographics now? Is it is it the middle income trap?
* 02:29And this is just another aspect of it. It's it's all too late,
particularly
* 02:35since they haven't really done it. The way I would argue to revive
* 02:39confidence is quite, quite straightforward.
* 02:42If you can revive household income, if you can increase wages, if you
can
* 02:47strengthen the social safety net, etc., then presumably Chinese
households will
* 02:52feel much more confident about their ability to spend.
* 02:55They'll go out and spend more. That will lead to business investment.
* 02:58And we get an A in a sort of a positive self-reinforcing cycle.
* 03:04The problem is quite difficult, though, because in
* 03:08order to increase the household share of GDP, you've really got to
implement a
* 03:14whole series of transfers that are almost the opposite of what China's
been
* 03:18doing for the last 20 to 30 years. So it's institutionally quite, excuse
* 03:23me, quite difficult to do, but at least there is now a consensus among
many
* 03:28economists, if not among policymakers, that that's what China needs to
do
* 03:34when it comes to the property sector. Do you think at this point, given
the
* 03:38correlations with so many aspects of the economy and households, do we
kind of
* 03:42push aside moral hazard? Is it time at some point to bring in, I
* 03:46don't know, something akin to a rescue fund?
* 03:50If you listen to the local governments, you know, that time was a year
ago, two
* 03:55years ago. I think local governments are really
* 03:57being squeezed. But to its credit, Beijing has been
* 04:01very, very reluctant to sort of jump in and and bail the sector out.
* 04:05And I think that's because of a recognition on their part that it's just
* 04:08been too big. You know, at the peak of residential
* 04:12property was around 350% of GDP. In the rest of the world, it's a bit
* 04:19high compared to historical standards, but high compared to historical
* 04:23standards means about 120, 130% of GDP. So China was was much higher.
* 04:30Real estate prices were much higher in China than anywhere else.
* 04:34And I think, you know, that's why Beijing has recognised that they can't
* 04:39really step in and bail it out. What they would like to do is what they
* 04:42would like to see is a much more gradual decline in prices.
* 04:47But I don't really think that that that can happen.
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WILL TAKE QUITE A WHILE TO FIX CHINA PROPERTY MARKET: PROFESSOR PETTIS
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WILL TAKE QUITE A WHILE TO FIX CHINA PROPERTY MARKET: PROFESSOR PETTIS
October 30th, 2023, 3:41 AM GMT+0100
Michael Pettis, professor of finance at Peking University in Beijing, discusses
the prospects of China's economy, the real estate market and the government's
policies. Pettis, also a nonresident senior fellow at the Carnegie Endowment for
International Peace, speaks with Haidi Stroud-Watts on "Bloomberg Daybreak:
Asia." (Excerpts of the full interview) (Source: Bloomberg)
--------------------------------------------------------------------------------
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