In March 2018, the real estate sector in China collapsed under a wave of capital flight.
Investors rushed to buy property, with some even purchasing properties for as little as US$3,000.
The rush has since been slowed by government restrictions and a lack of liquidity.
The global real estate market has been booming.
According to data from Sotheby’s International Realty, real estate investment jumped from $1.3 trillion in 2020 to $6.5 trillion in 2021, an 8% jump.
And that surge is expected to continue for the foreseeable future.
While some analysts are worried that the Chinese capital outflows will have a ripple effect across the world, others argue that it may have more lasting implications for the global economy.
As China’s economy becomes more efficient, the amount of capital moving through the economy will slow down, especially if it is used for speculative purposes, said Brian Johnson, a professor at the University of California, Berkeley, who studies financial flows.
“The economy has to be able to sustainably grow and grow at a pace that supports the value of all the things that are being bought,” Johnson said.
Johnson believes that China’s capital outflow is already having a ripple impact on the global real property market.
While the Chinese government may have limited capital controls, Johnson said, it has limited control over how the money is spent, meaning that foreign governments can’t restrict capital flows.
The lack of regulation could have a negative impact on domestic real estate markets.
“If the real world is not regulated, it is going to be very hard for domestic real property to grow,” Johnson added.
While China’s outflows have had a direct impact on global real markets, Johnson argues that they also have an indirect impact.
“There are a lot of countries in the world that are trying to emulate the Chinese model, but they are also doing things that they are very aware of the problems of the Chinese system,” Johnson explained.
“And so they are trying out different ideas and trying to try to come up with better ways of managing the flows of capital.”
The lack for restrictions on capital flows could also have implications for China’s ability to finance the rest of its economic expansion.
While Chinese companies have benefited from the economic expansion, the government has also been slowing investment in China, which has hurt the economy.
That has put the country in a position where it is running out of money, and that means it is having to cut back on spending.
That could be bad for China, because it will also hurt the U.S. and other economies that rely heavily on Chinese investment.
If China is running short on cash, it could use those resources to fund other projects in other countries, such as infrastructure.
“We think that if China’s money supply is limited, it’s going to have a greater impact on other countries,” Johnson concluded.
“In other words, if China is going back to more traditional modes of investment, they’re going to see a reduction in demand and a reduction of economic activity in their economy.”