Xi Jinping's real estate policy is collapsing China's economy

A property slump, weak consumption, and local government debt have erupted at the same time, and China's growth is falling rapidly.

The impact of these three overlapping crises on China's economy as a whole is structural and deep.

China's rise in the global economy rested on two drivers. The first was that from the 1990s, large inflows of American and European capital made it the center of global manufacturing. The 2001 WTO accession expanded this flow explosively, and China firmly established itself as the world's factory.

During this period China drew in advanced-country manufacturing with the competitive edge of cheap labor and a vast market.

Before that, most residents lived in danwei housing, the housing provided by state enterprises. When the government fully privatized this danwei housing, an era began in which individuals had to own their homes.

This made real estate a major asset in China's economy.

China's property ownership takes a distinctive form. Buildings can be privately owned, but the land beneath them belongs to the state. Despite this structure, a market in which housing is freely bought and sold took shape.

The impact of the property sector on China's economy is larger than it seems. In GDP statistics, property-related sectors exceed 30%, and if you add up the construction, finance, materials, and furniture industries indirectly connected to it, roughly half of the entire economy depends on the expansion of the property market.

When the property market boomed, China's domestic demand grew explosively.

The core of the policy is that it sets three financial indicators for property developers and disallows new loans if they are exceeded. Xi stated his intention to curb capitalist property speculation. In his philosophy, housing should function purely as a place to live, not as an object of speculation.

With the policy's implementation, the funding lifelines of China's major property developers were completely cut off, and large-scale construction projects were halted.

China's property transactions had a distinctive structure. Home buyers paid about 80% of the total sale price as a down payment at the start of construction. This means that when the developer's finances run into serious trouble, ordinary citizens take the direct hit. After construction funding dried up following the Three Red Lines, work on tens of millions of pre-sold homes was halted.

Buyers who had already paid the pre-sale money found themselves in a situation where they had effectively lost their entire fortune.

As the property sector froze, China's domestic market collapsed completely. Millions of households that had lost their pre-sale payments stopped spending, and job losses and wage arrears spread among workers in related industries. As household purchasing power plunged, domestic sales at factories fell as well.

As manufacturing inventories piled up, China began sending them to overseas markets. What started was not normal competition but dumping.

The reason China still maintains 4–5% growth is that output keeps rising. But because these goods don't sell at home, they go abroad. Statistically, rising production gets recorded as growth.

In this process, the real quality of life of ordinary citizens deteriorates further, because unemployment and weak consumption intensify.

Xi's government's advanced-industry policy is also creating another distortion. Resources and policy have concentrated on electric vehicles, batteries, and solar power, and these industries have expanded rapidly. Yet most of them are export-oriented and have little to do with the actual lives of ordinary Chinese citizens.

As a result, goods are overflowing, but domestic consumers have lost both the ability and the will to buy them.

The law has drawn criticism from the international community for forced assimilation and the repression of ethnic groups abroad.

In the process by which communist forces took power, especially in multi-ethnic states, they had to secure minority support by championing anti-imperialism. The early Chinese Communist Party also built a broad base of support by promising autonomy to ethnic minorities.

This was an essential governing strategy during the revolutionary period.

Looking at how the Soviet Union changed, a policy that began from early communist ideals gradually turned into imperialist tendencies after Stalin's regime. Professor Kim's analysis is that China is now heading in the same direction. In the name of minority suppression and strong centralization, the early promise of autonomy is being abandoned.

That is because building a strong China would mean integrating everything into the Han.

If current policy trends continue, Professor Kim predicts that minorities will effectively be unable to exist.

Minority suppression does not affect China alone. Along China's border regions and abroad, there are nations of non-Han peoples. For example, the Mongols of Inner Mongolia share cultural and historical ties with their kin in the Republic of Mongolia across the border. The more China's coercive policies intensify, the more these states push toward resisting China and strengthening ties with other countries.

Relations with neighboring countries like South Korea are also changing in this context.

Before Xi, China rallied emerging developing nations under the banner of anti-Americanism and anti-imperialism and wielded influence on the international stage. But as minority repression deepens, the international legitimacy China has long sought is being damaged. The prospect is that China's leadership in multinational coalitions such as BRICS will inevitably weaken.

TSMC's decision to build a plant in Kumamoto, Japan, carries clear risks. Kyushu, where Kumamoto is located, is known as one of Japan's regions most vulnerable to earthquakes. Even so, there are several reasons TSMC chose this area.

First, TSMC judged that an earthquake of that scale could be withstood with advanced seismic design technology. More important was the promise from Kumamoto's local government to provide very active support to attract TSMC.

TSMC's choice of Kumamoto is in fact closely tied to the structure of Japan's semiconductor industry. Japan holds world-class competitiveness in semiconductor materials, components, and equipment, and these materials, parts, and equipment (so-called 'sobu-chu') companies are concentrated in the Kumamoto area. If TSMC builds a plant here, it can secure its supply chain over the shortest distance.

In addition, Kumamoto has relatively abundant water within Kyushu. Since semiconductor production requires large amounts of water, this was another important reason for the choice.

TSMC appears to have initially considered entering Hokkaido. But Rapidus, Japan's semiconductor supply-chain strengthening project, was already advancing factory construction there. Since TSMC had no need to compete with Rapidus in Hokkaido, it is assessed to have turned toward Kumamoto in the south instead.