Beijing is ignoring the issue in part because of a more pressing crisis: the country’s spiralling property market.
Since the collapse of Evergrande, the country’s second largest property developer, at the end of 2021, China’s property market has been hit by the biggest downturn since the emergence of the private sector in the 1990s, says Mark Williams, chief Asia economist at Capital Economics.
Sales have slumped by more than a third compared to their peak in spring 2021. House prices have been falling for 16 months.
Values have so far fallen by 3.5pc and are likely to be down 6pc from peak at the worst point, says Loo. The numbers sound small, but they are remarkable considering China’s highly interventionist government.
“The fundamental problem in the housing market is that developers have been building more and more houses but now the population has peaked and urbanisation has slowed to a crawl,” says Williams.
Demand for housing between 2025 and 2030 will be half what it was in the five years before the pandemic, says Loo.
“That is pretty dramatic. The property sector was the key engine of growth in China. It won’t be going forwards,” she says.
A fifth of China’s economy is tied to the property and construction industry, says Williams.
“As that goes away, the difficulty is how to find a different growth driver, because the property boom is over.”
“A lot of developers won’t exist in five years’ time. They will go bankrupt or they will be bought up. There will be a huge wave of consolidation.”
60pc of household wealth is in property and the housing downturn therefore has massive repercussions for wealth and spending.
Falling house prices are not only a risk to citizens. Local governments have huge amounts of borrowed money tied up in land. The debt across all of China’s local government financing vehicles (LGFVs) has doubled in five years to RMB 50 trillion, says Loo – or £6.05 trillion.
“They have contingent liabilities that could explode down the road,” says Loo.
There are two other immediate risks: another high profile property developer goes bust; or escalating geopolitical tensions boil over.
A military invasion of Taiwan would bring an enormous shock. Analysts see a growing risk of Beijing invading.
Fears of potential conflict, combined with the disruption to supply China wrought by zero Covid, mean China is losing its attractiveness to international businesses.
“China is no longer the primary investment destination it once was,” according to Colm Rafferty, the chair of The American Chamber of Commerce in the People’s Republic of China.
Writing in its March business climate survey report, Rafferty reported that 45c of his members thought China’s investment environment was deteriorating – the highest share in five years. For the first time, less than half of AmCham China’s members ranked China as a top three investment priority.
AmCham China noted a 10 percentage point jump in the number of companies leaving or planning to relocate their manufacturing and sourcing outside of China.
“A lot of companies are worried about getting caught on the wrong side of sanctions in the future, particularly in the tech sector,” says Williams.
Confronting an ageing population, a slowing economy, a property market implosion and rapidly rising geopolitical risks, many Sino-watchers are rethinking their outlook.
“10 years ago, it seemed inevitable that China would dominate the world’s economy,” says Williams. “That is no longer the case.”