interesting article especially now that we are seeing some of the effects of this over-financialization. The over-investment in real estate does look to be a major problem for the Chinese economy. Local governments often rely on land sales (well land grants technically) so I see how that could create a perverse incentive to let RE prices keep inflating. Since this was written we've seen some of the pain this has caused, though the central government does seem to recognize this and is walking a careful line of trying to rebalance the economy and reduce that moral hazard by letting those real estate developers take heavy losses or go bankrupt without letting them collapse the market entirely.

Sure that's gonna hurt gdp growth and a lot of middle class people with mortgages but that's not everything in an long term healthy economy, and it's better for the government to correct this on their terms rather with a market panic. They'll be able to cushion the worst effects on the population with social spending and further regulation. In the past decades the Chinese bureaucracy did have a sort of obsession with obtaining the highest gdp growth possible (highest GDP growth in your Prefecture/Province/ect would tend to make you the first pick for promotion), so it's good they are shifting away from this in the 2020s. To make up for these losses they seem to be promoting high-end industrial development and education/innovation, absolutely the correct move in my opinion, especially with the west trying to put spikes in their tire in that sector. If anyone is going to be able to pull it off it will be the PRC.

I'm gonna quote Li Qiang, Premier of the State Council, in his 2024 REPORT ON THE WORK OF THE GOVERNMENT from last month, bolding the notable bits so we can see what the government's response to this problem specifically has been:

In light of grave challenges and the particular conditions of the post-Covid economic recovery, we took coordinated steps to ensure stable growth and sustain its momentum, and gave priority to consolidating the foundations of the economy and taking targeted steps. We ensured the proper timing, intensity, and effect in conducting macro regulation, and strengthened counter-cyclical adjustments. We refrained from resorting to a deluge of stimulus policies or strong short-term stimulus measures (Hexbear edit: this was the American response to their own real estate trouble), and made greater efforts to promote high-quality development. Over the course of the year, China’s economy experienced a slow start, but reached a midyear peak and achieved stable growth in the latter stage. (Pg.5)

To build China’s strength in strategic science and technology, we stepped up efforts to implement major science and technology programs. We adopted an overarching plan to advance new industrialization. We took measures to ensure the stable performance of the industrial sector and support advanced manufacturing, and increased the additional tax deductions for R&D expenses of enterprises in key industries. This helped promote high-quality development of key industrial chains. As a result, industrial enterprise profits stopped declining and began growing. (Pg 5)

We improved city-specific policies on real estate regulation, worked to lower housing mortgage costs, and ensured the delivery of housing projects. We formulated and implemented a package of steps to address local government debt, dealt with financial risks by type, and ensured that no systemic risks arose. (Pg 6)

We will continue to ensure greater security through high-quality development and promote high-quality development with a greater degree of security. We will defuse risks in real estate, local government debt, and small and medium financial institutions by addressing both symptoms and root causes. By doing so, we will safeguard overall economic and financial stability. (Pg 25)

We will improve the long-term mechanisms for preventing and controlling risks. We will, in response to the trend of new urbanization and supply and demand changes in the housing market, move faster to foster a new development model for real estate. We will scale up the building and supply of government-subsidized housing and improve the basic systems for commodity housing to meet people’s essential need for a home to live in and their different demands for better housing. (Pg 26)

We must pursue high-quality development as our top priority in the new era, make improving the people’s wellbeing the most important political achievement, and endeavor to build a law-based, innovation-driven, and service-oriented government of integrity that meets the people’s expectations and fully performs its duties. (Pg 35)