China’s response to its property crash has been to dramatically expand its manufacturing sector. With domestic consumer confidence and demand weak, that is producing a flood of cheap exports which, if it continues, will have significant implications for China and the rest of the world.
It says that, while total bank lending growth within China has remained relatively stable, it has been redirected from property towards manufacturing, with the lending from property-related activity flatlining while the growth rate for new industrial lending has roughly quintupled since 2022. Growth in new “green” loans, which are heavily concentrated in manufacturing, has picked up even more dramatically.
China’s exports in January and February were 7.1 per cent higher than for the same months last year and steel exports almost 33 per cent higher as the lack of demand from the property sector drove China’s mills to shift towards export markets.
China’s state-driven economic strategy envisages global dominance of a number of highly strategic advanced manufacturing sectors that the Europeans and Americans are highly protective of. China’s state-driven economic strategy envisages global dominance of a number of highly strategic advanced manufacturing sectors – semiconductors, EVs, solar panels, wind turbines, artificial intelligence, aviation – that the Europeans and Americans are highly protective of.
Further stress in the sector would amplify the existing fiscal pressures on local governments that have traditionally be reliant on income from property sales and undermine their ability to support developers and local manufacturers.