Chinese Economy: Is Real Estate No Longer the Main Driver of Growth in China? Find Out What Could Replace It!

Beijing, China – Since the year 2022, China has experienced a downturn in its real estate sector, leading to various implications for the country’s economy. This decline has had a direct impact on fixed-asset investment, consumer spending, and the credit system. As a result, the traditional reliance on real estate as a key driver of economic growth in China is proving to be unsustainable.

The automotive industry has emerged as a potential alternative to real estate as the primary engine of economic growth in China. While the sector shows promise with a market size in the trillions of yuan, it still lags behind real estate sales significantly. However, replacing housing with manufacturing is not a feasible option due to the country’s already robust manufacturing sector and potential trade frictions that could arise from increased exports.

There is a notable demand for improvements in key sectors such as education and healthcare in China. These areas have long been burdens for the Chinese population and remain hot topics in conversations. While progress has been made in housing over the past two decades, challenges persist in education and healthcare, presenting significant business opportunities for the market and growth potential for the Chinese economy.

In 2023, the United States spent over 20% of its GDP on education and healthcare, highlighting room for growth in China’s investment in these sectors. Increasing the share of employment in the service sector to match levels in similar developed countries could unlock substantial growth potential for China, as seen in World Bank data.

Investment in education and healthcare is essential not only for economic growth but also for improving labor productivity and human capital accumulation. Emphasizing human capital and innovation over tangible, physical capital in China’s development model will be crucial for future growth. Increased government borrowing for public services and social security expenditure can help offset the negative impacts of the real estate downturn on the economy.

The Chinese government’s focus on science, education, and human capital underscores the importance of a well-coordinated relationship between manufacturing and service industries. Leveraging the service sector as a new growth engine could significantly expand the Chinese economy’s capacity for growth and development.