An experiment everyone is concerned about but not particularly paying attention to

From Can Beijing halt China's housing avalanche? The most important economic-policy question for 2023? by Adam Tooze.  A good update on China's continuing challenge with the real estate sector.

Few things matter more for the world economy in 2023 than China’s fortunes. Not since the reform period began, have there been more serious question marks over the trajectory of China’s growth.

The 2015-6 near-miss crisis, when the RMB depreciated and capital flooded out of China was a more acute moment of danger. Fear of a repetition still hangs over the current scene. But in 2015-6, the growth engine was not spluttering to the same degree. China did not face the kind of labour market pressures it does today, with youth unemployment rising towards 20 percent and graduates uncertain of their future employment. Nor was China in 2015/6 facing an avalanche in its real estate sector.

The article is full of both data and insight.

It is the demand for concrete and steel generated by this giant construction boom that has made Chinese growth so dirty. It is important to emphasize this point. As a driver of energy consumption, the rehousing of hundreds of millions of people, dwarfs China’s role as an exporter. It is important, of course, for Europeans and Americans to remind ourselves that in the course of globalization we have exported a substantial chunk of our pollution, much of it to China. But to imagine that it is our out-sourced emissions that drive China’s massive surge in energy consumption and CO2 emissions is to succumb to anachronistic Western-centric thinking. It is domestic forces that drive China’s growth.

Will 2023 be the year in which China breaks with its heavy-industrial, construction-driven growth-model? Western experts, certainly, are agreed that what China needs is not more physical construction but a burst of institutional state-building. What China needs is a welfare state adequate to its new status as a high-middle income country and that will require a new fiscal constitution. Amongst G20 members China and India rival each other for the lowest share of income tax in GDP.

I have long argued that the reforms launched under Deng Xiaoping, particularly after 1992, have been highly beneficial to Chinese citizens while simultaneously creating an increasing tension that has to be resolved at some point.

Under the reforms, China implemented competitive and free(ish) markets while reinforcing a closed political system.  My argument has been that free markets need free flow of information and thought (innovation) to continue thriving and that at some point, this need for information and freedom to experiment would come into conflict with the goals of a closed political system.

In the background, of course, there is also the ever-present demographic challenge of whether China can become rich before it gets old.  That remains a closely run race.

In the meantime, the foreign policy crises, the unbalanced real estate markets, the consequences of the zero Covid policy, the dependence on construction and export, are all playing out in the context of that tension between a closed and tightly controlled political system and the needs of their free(ish) market economy which can only survive with free speech and freedom of action.