China's Property Sector Faces Multi-Year Recovery Amid Deep Pessimism

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Gerard DiPippo, a senior fellow at the RAND China Research Center and former U.S. intelligence community economic analyst, recently stated that China's property sector has "not bottomed out," projecting a recovery period of "years" for the national market. His assessment, shared on social media, highlights a striking pessimism among his contacts in China regarding the real estate crisis, which he identifies as the "most critical macro story" for the country.

DiPippo noted that while Tier 1 cities might see some stabilization, the broader national market faces a prolonged downturn. This aligns with his earlier commentary, as reported by the BBC, that Chinese consumer confidence is unlikely to fully recover until the property sector clearly bottoms out, given that households have invested most of their wealth in real estate.

The crisis intensified following Beijing's "three red lines" policy in late 2020, aimed at controlling debt-fueled property construction. This policy, while intended to rebalance the economy, lacked a clear plan for managing the ensuing economic and fiscal fallout, particularly for local governments whose finances are heavily reliant on land sales. Property prices have dropped significantly since 2021, with oversupply remaining a major issue, especially in smaller cities.

Despite the severe challenges, President Xi Jinping's administration has shown reluctance for a large-scale bailout, opting instead for "stabilization over stimulus," according to a Brookings Institution analysis. This approach reflects a strategic pivot towards high-tech industries and self-reliance, even as the property slump contributes to sluggish domestic demand, deflationary pressures, and cautious consumer behavior.

Analysts, including DiPippo, suggest that the property sector's contraction, coupled with declining consumer confidence, poses significant headwinds. The structural nature of these issues, including high household savings and a historical reliance on investment-driven growth, means that a full recovery will be a lengthy process, continuing to impact overall economic momentum for the foreseeable future.