These have been a few disappointing months for anyone watching China's economy. The general view at the start of the year was that economic growth was on the point of bottoming out. Instead, the economy continued to slow down in the second quarter. There was still no sign of a rebound in growth in the data for July.
In the meantime, the government has cut interest rates, relaxed constraints on bank lending and approved a host of new infrastructure projects to turn the economy around. But the government has continued to insist that its controls on the property market will remain in place.
Real estate investment remains in the doldrums as a result. In July, developers launched 25 percent fewer projects year-on-year. The contrast with the situation three years ago is stark. A rebound in real estate investment of the scale we saw then would be enough to lift China's growth over the next year by 2 percentage points. If everything else remained the same, this alone would be enough to push GDP growth back above 9 percent.
The failure of the economy to turn around prompts the question: Is a strong economic recovery even possible without strong growth in the real estate sector?
It is hard to overstate the property sector's importance to the wider economy and even to the rest of the world. China has built more than 90 million properties in the past 15 years, enough to house the combined populations of Germany, France and the United Kingdom. Along the way, construction activity has boosted economic growth and been a key source of jobs for migrant workers. When exporters were struggling in 2009, the surge in construction provided alternative work for millions of people who were laid off.
The effects are felt more widely. Strong growth in property construction and sales promotes investment in related industries producing building materials and the furniture and appliances that ultimately furnish new homes. When these secondary effects are added in, the property sector last year drove about 10 percent of all spending in the economy.
The impact doesn't end there. Construction activity has fuelled booms in commodity-producing economies around the world. For example, the property sector, along with China's infrastructure industry, accounts for one-fourth of the global steel demand.
The upshot is that, with weak global demand weighing on its economy, a return to rapid economic growth by China is extremely unlikely as long as the property sector is struggling.
