The whole property collapse narrative was basically projection. People looked at what would happen in a liberal capitalist system they're familiar with and then assumed that the same thing would happen in China. But China doesn't have the same system that we do in the west, and that's why the whole premise was fundamentally flawed.China didn't bail out investors and speculators the way the US did in 2008, instead They let them eat the loss on their bad investment. The property bubble being wound down doesn't actually affect regular people in any significant way. It's just a handful of rich people losing out on bad bets they made. At the same time, central planning allowed to redirect economy away from real estate and towards high tech and industry sectors that are now booming. Marco's thesis relies heavily on measuring consumption and investment through a western lens where housing has to continuously appreciating to prop up middle class wealth. But China intentionally chose to kill that model, and wind down the bubble to purge rent seeking behavior and force a structural transition towards stuff like high tech industry, EVs, and clean energy.
When the bubble popped in 2008, the US bailed out the banks and speculators while leaving regular people underwater. China is doing the exact opposite by letting the developers and wealthy multi property speculators eat the losses. The supposed destruction of household wealth being wrung out over this is largely paper gains from people hoarding second and third investment properties. Regular people who just own a single home they live in are not affected by this in any way. And since banks are state owned, they are not facing a western style credit crunch. They don't need wholesale money markets and China controls its own closed capital account which means they can just issue currency as much as they want. There is no subprime contagion happening in this scenario.
The comparison to Japan in the nineties also falls flat when you take macro conditions into account. Japan was a US security partner that got forced into the Plaza Accord which artificially spiked the yen and created an uncontrollable asset bubble. They had limited tools to stabilize the economy once borrowing costs shot up, and the government couldn't dictate terms to the private banking sector. But China controls its currency along with the entire commanding heights of the financial system. They actively choked off credit to property developers through the three red lines policy to redirect capital into strategic sectors.
Even the hand wringing about the anti involution campaign curbing manufacturing investment misses the point. Local governments dialing back overcapacity is another example of a conscious course correction being made. Western economists are so addicted to raw GDP growth that they can't even comprehend the idea of an intentional economic slowdown. Willingness to accept lower top line growth is what it takes to make the transition up the value chain in tech and industrial sectors.
The whole property collapse narrative was basically projection. People looked at what would happen in a liberal capitalist system they're familiar with and then assumed that the same thing would happen in China. But China doesn't have the same system that we do in the west, and that's why the whole premise was fundamentally flawed.China didn't bail out investors and speculators the way the US did in 2008, instead They let them eat the loss on their bad investment. The property bubble being wound down doesn't actually affect regular people in any significant way. It's just a handful of rich people losing out on bad bets they made. At the same time, central planning allowed to redirect economy away from real estate and towards high tech and industry sectors that are now booming. Marco's thesis relies heavily on measuring consumption and investment through a western lens where housing has to continuously appreciating to prop up middle class wealth. But China intentionally chose to kill that model, and wind down the bubble to purge rent seeking behavior and force a structural transition towards stuff like high tech industry, EVs, and clean energy.
When the bubble popped in 2008, the US bailed out the banks and speculators while leaving regular people underwater. China is doing the exact opposite by letting the developers and wealthy multi property speculators eat the losses. The supposed destruction of household wealth being wrung out over this is largely paper gains from people hoarding second and third investment properties. Regular people who just own a single home they live in are not affected by this in any way. And since banks are state owned, they are not facing a western style credit crunch. They don't need wholesale money markets and China controls its own closed capital account which means they can just issue currency as much as they want. There is no subprime contagion happening in this scenario.
The comparison to Japan in the nineties also falls flat when you take macro conditions into account. Japan was a US security partner that got forced into the Plaza Accord which artificially spiked the yen and created an uncontrollable asset bubble. They had limited tools to stabilize the economy once borrowing costs shot up, and the government couldn't dictate terms to the private banking sector. But China controls its currency along with the entire commanding heights of the financial system. They actively choked off credit to property developers through the three red lines policy to redirect capital into strategic sectors.
Even the hand wringing about the anti involution campaign curbing manufacturing investment misses the point. Local governments dialing back overcapacity is another example of a conscious course correction being made. Western economists are so addicted to raw GDP growth that they can't even comprehend the idea of an intentional economic slowdown. Willingness to accept lower top line growth is what it takes to make the transition up the value chain in tech and industrial sectors.