China's economic troubles are a result of the post-2008 'debt supercycle' finally coming back to bite it, Harvard economist says
- China is being hit by a "debt supercycle" that began with the 2008 financial crisis, Kenneth Rogoff said.
- The top economist pointed to signs of trouble in the nation's weakening property market.
China's economic troubles are the result of a debt bubble that began in 2008 – and the money used to prop up growth in the country over the past decade is now finally coming back to bite, according to top economist Kenneth Rogoff.
In an op-ed for Project Syndicate last week, the Harvard professor pointed to a "debt supercycle" that started in the US during the financial crisis, spread to Europe in 2010, and has since reached the world's less prosperous economies.
While Beijing has a strong record of containing economic fires, today's crisis of slowing growth and high debt is unprecedented, he added.
"China's current problems can be traced back to its massive post-2008 investment stimulus, a significant portion of which fueled the real-estate construction boom," Rogoff said. "After years of building housing and offices at breakneck speed, the bloated property sector – which accounts for 23% of the country's GDP (26% counting imports) – is now yielding diminishing returns."
That's visible in the recent collapse of China's major property developers, like Evergrande and Country Garden.
Though China's housing supply and infrastructure are similar to that of other advanced economies, its per capita income remains relatively low, Rogoff said, just one of the factors that has shaken confidence in the sector.
"The debt supercycle may have lasted longer than initially expected, perhaps because of the pandemic. But it was a critical piece of the story, and now, as China's economy falters, it is the best explanation for what might come next," he later added.
Some experts have made the case that's China's economy is in a state of secular stagnation, a period of sluggish economic growth similar to the one that slammed Japan's economy in the 1990s. That's because the nation faces key demographic and financial imbalance issues, like its shrinking workforce population.
Trouble for China's economy could stretch on over the long-term as it faces poor growth prospects, experts have warned. The nation officially slipped into deflation over the last quarter, thanks to demand failing to revive itself amid a so-far disappointing economic reopening.