China, a net food importer with less than half as much farmland as the US and four times the population, is facing food insecurity, an aging crisis, and a real-estate bubble. To increase food security, Xi Jinping has ordered public parks to be razed and planted with food, while also incentivizing local governments to plant trees. However, China’s farmland is considerably less productive than US farmland, with soybeans costing 1.3 times more to cultivate and 60% lower yield.
China should reassign its inefficient farmers to factory and service jobs, which contribute more to GDP, but this will require shifting manufacturing and service workers to agriculture, where their GDP contribution will decrease. In 1979, Beijing implemented a family-planning policy that restricted most couples to having only one child to limit population size, ensure economic prosperity, and prevent hunger. The policy also aimed to reduce the dependency ratio to ease the burden on the urban social system.
To sell people on the idea, the government launched a propaganda campaign with the slogan “one perfect child,” encouraging parents and grandparents to focus all of their money and love on a single child. This led to the introduction of singing lessons, dancing, music lessons, after-school tutoring, and math and English programs for children three and up, which parents could afford due to the combined wealth of six adults.
The Chinese Communist Party (CCP) implemented a two-child policy in 2011 to encourage more children, but the expected baby boom never came due to high costs and a lack of intergenerational wealth. The nominal price of apartments in major cities reached US levels, and the average income hovered around $10,000 per year. Many young people had to delay marriage, further reducing the likelihood of having multiple children. The CCP raised the limit to three children in 2021, but couples failed to respond, and the number of births continued to drop. Since 2015, the workforce has declined by about twenty million, and the median age is now thirty-nine. The government predicts a birth rate of only seven million babies this year among a population of over 1.4 billion.
China is still in the process of development, with a GDP per capita approximately one third that of Italy or Japan and less than one sixth that of the US. The country relies heavily on low-end, labor-intensive manufacturing, but youth unemployment reached 21.3% in August. During China’s period of strict communism, citizens had little discretionary income and few opportunities to invest. Once the economy began liberalizing, people became wealthier, but the only viable option for investment was real estate. When China’s first stock exchange opened in Shanghai in 1990, people had ten years of experience with real estate but did not understand the stock market and did not trust the government’s opaque control.
China’s central government has been liberalizing credit through state-owned banks to achieve double-digit GDP growth, which has led to a significant investment in property and infrastructure. Housing assets account for two-thirds of household wealth, and the number of new projects has been seen as a measure of good governance and progress towards prosperity. The development of uninhabited “ghost cities” and massive apartment complexes in sparsely populated areas like the Siberian border region has been a result.
The government has stated that “houses are for living in, not speculation.” However, China’s debt-to-GDP ratio reached 280 percent this year, with state banks sitting on $8.4 trillion in property-sector debt. Real estate represents 90% of the income of China’s heavily-indebted local governments, and around 80 percent of local government funding vehicles (LGFV) do not have enough cash to make interest payments. If property sales stop, local governments would be unable to keep up their interest payments, and if prices drop, these LGFVs would have to default.
Beijing reverted to its traditional strategy of relying on the real-estate sector to stimulate the economy during and following the Covid-19 lockdowns. Xi Jinping implemented new policies to boost lending, resulting in 50 million unsold apartment units. If the government ceases all intervention in the real-estate market and lets prices drop to meet demand, many loans could go into default and harm the entire financial system.
