What we discuss
Yi and Luke explore three specific questions:
- How big is China's housing sector?
We are frequently reminded by the media of how important the property sector is to China's economy. Specifically, recent news reports have often mentioned that the property sector accounts for as much as 30% of China's GDP. Is that true? No. The housing sector value-added is about 11% of China's GDP, while housing demand is about 20% of China's GDP.
- How long will this property downcycle last?
A property downcycle in China typically lasts 3-4 quarters. China's property sector has had four downturns over the past 15 years (the brief downturn in 2020 caused by the Covid-19 shock is excluded). We think the most probable scenario is that the housing sales downturn will last for 4 quarters; growth should turn positive by Q3 2022.
- How much impact will there be on China's GDP growth in 2022?
China's GDP growth slowed during each of the 4 property downcycles in the past 15 years. These property downcycles (periods when property sales growth stayed negative) on average lasted 3 quarters. Real GDP growth on average dropped by about 2 ppts during these periods, varying from 4.8 ppts in 2008-09 to 0.7 ppts in 2014-15. The housing downcycle's impact on GDP growth is likely to be 1.5-2 percentage points. In a downside scenario – that the housing downturn lasts throughout 2022 – its impact on GDP growth could reach 3-4 percentage points.