China: Desperately Seeking a New Engine

The Chinese are providing American consumers with cheaper goods. By doing so, the Chinese are increasing the purchasing power of American consumers, who are doing what they do best; they are shopping. It’s a gain for the US economy, which is getting better economic growth with lower inflation. It’s a loss for Chinese consumers, who are facing deflation and higher unemployment and dealing with the consequences of the bursting of their property bubble. China’s rapidly aging demographic profile is only exacerbating these problems.

The woes in the Chinese property market are weighing on consumer spending since many of the Chinese have significant portions of their personal assets in brand new empty apartments. They were worth owning when they appreciated in value, but now they have been losing value. The persistent drag in the property sector is impeding the sale of land by local governments, which is depressing their revenues and their spending on infrastructure as well as making it harder to service their debts.