Beijing has been reluctant to sacrifice growth and social stability to tackle its housing bubble.
China’s real estate sector is one of its economy’s most important assets. Real estate has contributed considerably to China’s transition to a socialist market-based economy and its strong economic growth in recent decades. Now, however, what once propelled the Chinese economy forward threatens to hold it back. Structural economic problems are emerging, and real estate is among the first sectors to show signs of distress. Given its significance to the Chinese growth model, failure to address these issues would likely trigger a crash that would wreck the Chinese economy and disrupt the global economic system.
On paper, there are multiple solutions to the crisis, but they conflict with another of Beijing’s priorities: reducing economic inequality. The inequality-fighting initiative, known as “common prosperity,” has been a major party focus since last year and is codified in the Chinese Communist Party’s current five-year plan. China will need to choose between resolving its real estate crisis or staying the course on common prosperity. While it will try to do both, in the end Beijing will prioritize common prosperity and delay tackling the real estate issue until later.