Читать книгу The Political Economy of the BRICS Countries - Группа авторов - Страница 36

While the rate of investment in real estate seems to be decelerating lately, property prices seem to continue to rise (Figure 7).

The usual official defence of such an investment strategy is two-fold: (1) it is wise to build infrastructure ahead of demand to avoid short-run bottlenecks (as exemplified by Indian experience), as recommended in development literature (à la Arthur Lewis); (2) as capital stock per head in China is way below that in the developed economies, China has to invest more, and not less, quickly if it is to graduate to the status of a developed economy.

But there has been a growing concern about China’s debt sustainability, and the potential instability that could follow. There are apprehensions that the magnitude of debt could, if it crosses the tipping point, potentially lead to Japanese-style debt deflation, or a real estate bubble burst.

Figure 7:Rising real estate prices.

Source: The Economist (2016).

There are other concerns about potential capital outflows on account of global financial instability or domestic political consideration (in particular the on-going anti-corruption drive) that could lead to capital flight (as evident from depreciation of yuan, or due to capital market gyrations last year).

Given China’s huge foreign exchange (forex) reserves, prima facie, external debt crisis seems to be ruled out. Moreover, since the majority of China’s private sector debt is in domestic currency, it is argued that the Chinese government can reschedule the debt without destabilizing its external sector. But the question of whether China can avoid getting into Japanese-style debt deflation is hard to speculate. Similarly, the Chinese central government seems unable to regulate housing investment adequately as much of it seems to be financed by shadow banking driven by interests at the provincial level. So, whether China can avoid a real estate crash remains an open question.

One is inclined to argue that the outcome would ultimately depend on political economic factors. Apparently, China is a strong state (yet brittle state?) with the capacity to carry through its political mandate (even if it means high social and economic costs). But if there are serious fissures in the state apparatus, as seems to be emerging after the crackdown on corruption under the present regime (which is apparently hurting many powerful political actors as evident from their efforts to hide their investments abroad), the outcome could be unpredictable.