The last few weeks have seen the culmination of various economic challenges across China resulting in what some are describing as an economic meltdown. This is an issue which has been ongoing for over 12 months amid concerns that the Chinese authorities were manipulating markets behind the scenes. This came to a head earlier this week when the Chinese stock market went into freefall and the government’s attempt to control this problem, introducing so-called circuit breakers, failed spectacularly.
There is growing concern that the Chinese economic meltdown will eventually have an impact upon real estate markets around the world such as the US, Canada and the UK.
Short-term pain long-term gain
There is a growing opinion that ongoing attempts by the Chinese authorities to support the stock market and prevent mass selling have failed. Some of these attempted manipulation strategies have now been withdrawn and while we will see some buying of Chinese stock by the authorities, more is now being left to market forces. As a consequence, could we be on the verge of yet another stage on the road to a free Chinese economy?
While it may be a little premature to suggest that the Chinese economy will move to a full “free market” principle there are signs that the Chinese authorities are being forced to think again.
Real estate investment
Real estate investment across China has been in freefall for some time now with many property investors looking overseas to the likes of the US, Canada and the UK for their real estate exposure. There will come a time when Chinese real estate becomes attractive, when it falls too far, but at this moment in time the massive issue of oversupply and little demand will not help prices in the short to medium term.
We may also see the repatriations of some overseas investments by Chinese individuals and investment companies to cover their challenging situations back home. This could take some of the steam out of markets such as the US, Canada and the UK where Chinese real estate investors have been very active. Indeed, if the Chinese stock markets and economies do not find a level in the short term this will have a growing impact upon the worldwide economy.
In years gone by China was something of a mystery to many investors then it was partly opened up to foreign investors and the US authorities negotiated closer ties. China is now a major powerhouse and has a significant impact upon the worldwide economy. They used to say that if the US sneezed then Europe would catch a cold but now we can probably include China in this investment market saying.
In the longer term a shakeout of Chinese investment markets, reduced government influence and a more “free market” approach could be just what investors ordered. That is not to say that the short to medium term situation will be easy as it will certainly be a rocky ride for the foreseeable future. However, maybe we have turned a corner in relation to the long-term free market strategy investors have dreamed about in China?