Persistent Downturn in China’s Housing Construction Sector Expected to Impact Economic Growth in 2024

Photo by Ricardo Gomez Angel on Unsplash
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In a harbinger of challenging economic times, China’s housing construction sector is projected to endure a downturn into 2024. This sustained slump, despite government interventions to stabilize the market, threatens to hamper the country’s overall economic growth. An array of investment banks and securities brokerages, including heavyweights like Goldman Sachs Group Inc., Morgan Stanley, and UBS Group AG, share this grim forecast, underscoring the gravity of the situation.

Implications Beyond Construction

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The repercussions of this declining trend cut much deeper than the construction industry. The housing sector, accounting for nearly 40% of China’s steel requirements, is a pivotal component of the Chinese economy. A contraction in this sector can exert a ripple effect on the broader economic health, marking a downturn in associated industries and sectors. Major economic hubs, such as Beijing and Tianjin, already find themselves grappling with environmental issues like air pollution, which could result in more stringent controls and longer-lasting restrictions.

Slowing Investment and Market Response

The adverse effects of the slump are increasingly visible in market dynamics. Iron ore prices fell as the grim outlook for China’s housing construction in the coming year took hold. Additionally, investment in China’s housing sector is forecasted to continue its slide, with ten major financial institutions predicting a downturn. This has led to consequential shifts within the industry, with prominent developers like KWG Group Holdings Ltd beginning the new year with a fresh auditor following the resignation of EY, and China Oceanwide Holdings Ltd facing a compulsory de-listing from the Shenzhen exchange.

The Economic Toll of the Slump

The persistent slump in China’s property sector has triggered international concerns about a potential global recession. Goldman Sachs economists anticipate a ‘double-digit’ contraction in real estate fixed-asset investment, which could potentially slash real GDP growth by one percentage point. The property sector’s contribution to GDP has already dipped from 24% in 2018 to around 20% currently. The sharp decline in housing construction, predicted to enter its third consecutive year, underscores the profound challenges China faces in reviving a pivotal sector amid broader economic concerns.