Part 2/6:
The problem with this model is that it works well when an economy is seriously underinvested, as China was in the 1980s and 1990s. However, as investment becomes increasingly unproductive, including in the property sector, it needs to be reined in. This poses a challenge, as investment has been the primary driver of China's growth, accounting for 43% of GDP, compared to a global average of around 25%.
Shifting from Real Estate to Manufacturing
In 2021, Beijing finally took steps to constrain the growth in the real estate sector, which accounted for about one-third of total investment in the Chinese economy. However, this created a new problem - if investment is reduced, either consumption growth must surge or GDP growth will drop.