Australia’s largest retirement fund’s investment chief has warned investors to prepare for the end of China’s rapid economic growth, as experiences in other countries show it takes “decades” to recover from a downturn.
Mark Delaney, chief investment officer of Australian Super, which manages over 341 billion Australian dollars in assets, stated on Tuesday (October 15th) in Sydney during an event with Bloomberg that the nearly 9% annual growth rate in China is now a thing of the past.
China has recently faced unprecedented economic pressures due to insufficient consumption, declining corporate revenues, falling real estate prices, shrinking local government fiscal revenues, rising youth unemployment, and the seasonal year-end accounting pressure, potentially leading to a widespread chain reaction debt crisis.
In response to these challenges, Beijing has rolled out a series of stimulus measures, including a large-scale package plan to boost the troubled real estate market, lowering borrowing costs for mortgages, and reducing the down payment requirements for purchasing a second home to historic lows. However, these policies have yet to show significant effects in stopping the economic downturn.
Delaney emphasized that the authorities have been keen on maintaining stability in housing prices, but these supportive policies are aimed at preventing a sharp decline in real estate value to avoid “severely impacting consumer spending and triggering other negative cycles when the real estate bubble bursts.”
Citing Australian Super’s analysis of the real estate bubble crisis in Japan, Delaney pointed out that the experiences of other countries’ housing market downturns indicate that it takes “decades” to recover.
“Governments worldwide are working to stabilize (real estate) supply, but what China truly needs to address is the structural surplus supply issue,” he said. “I believe it will indeed have a significant impact on China.”
The market is closely monitoring China’s stimulus measures, with investors hoping for the government to fulfill its commitment to providing more financial support. During a press conference last Saturday (October 12th), Chinese Finance Minister Lao Fuan pledged to take new measures to support the real estate industry and hinted at increasing government borrowing.
Many overseas economists view the measures taken by the Chinese government as a safety net rather than a silver bullet. These policies aim to mitigate the risks of a serious economic slowdown rather than implementing large-scale stimulus efforts to boost household consumer confidence and pull the economy out of the crisis.
Former Chief Economic Advisor of Allianz Group, Mohamed A. El-Erian, emphasized that there are two crucial points to consider in investing in China: firstly, macro tools cannot solve China’s micro problems; secondly, the necessary micro tools need time to develop and have an impact.
According to his observations, China’s severe imbalance in real estate and local government financing issues requires patience and caution in deleveraging and implementing reforms over time.
“Without this, the silver bullet could exacerbate excessive leverage in some regions, worsen overindebtedness, and further disrupt the efficient allocation of resources in the entire economy,” he warned.