Lou Jiwei on China's Economic Challenges | Generated by AI
Question: How does former Finance Minister Lou Jiwei comment on China’s economy and its housing market?
Answer:
Former Finance Minister Lou Jiwei, who served from 2013 to 2016 and remains an influential economic advisor, has been outspoken about China’s economic challenges, particularly the ongoing property sector downturn. His recent comments emphasize the housing market’s persistent drag on growth, deflationary pressures, and the need for bold policy responses. Below is a summary of his key views, drawn primarily from his November 2025 speech at the Caixin Summit in Beijing and earlier statements.
On the Housing Market
- Prolonged Slump Expected: Lou warns that the property market has not bottomed out and its contraction could last at least another five years, hindering overall economic growth during this transformation period. He attributes this to structural oversupply in housing, offices, retail spaces, and industrial parks, which has dampened demand and led to falling home prices.
- Impact on Households and Deflation: Falling home values have created “poor expectations for the future” among households, eroding wealth effects and suppressing consumption. This amplifies deflationary trends, as lower property wealth reduces spending and reinforces price declines. Lou notes that China’s Consumer Price Index (CPI) understates this effect due to rent’s low weighting.
- Not a Systemic Risk, But a Major Drag: Unlike the 2021-2022 liquidity crises at developers like Evergrande, Lou believes real estate is unlikely to trigger systemic financial instability. However, its prolonged weakness continues to frustrate recovery efforts.
- Policy Shortcomings: Efforts to encourage home purchases (e.g., easing restrictions) have had “no significant effect,” as noted in his 2022 remarks. He advocates accelerating the phase-out of the controversial presale system to ensure project deliveries and prevent further buyer losses.
On the Broader Economy
- Key Drags: The property slump, combined with weak exports and sluggish stock markets, has contributed to insufficient domestic demand, excess supply, and downward pressure on growth. In 2024, real estate investment fell 9.6% year-on-year, pulling GDP growth by about 0.6 percentage points alongside trade weaknesses.
- Inequality and Structural Issues: China’s urban-rural divide—fueled by the hukou (household registration) system and rigid land ownership—exacerbates income inequality and limits labor mobility. This restricts urban consumption and housing demand, hindering “common prosperity” goals.
- Growth Outlook: While retail sales grew 7.2% in early 2024, the two-year average was only 3.6%, reflecting stagnation. Lou sees potential in China’s entrepreneurs and unified market but warns of a vicious cycle: weak private sector confidence leads to high savings (50% of GDP, mostly in state banks), underinvestment, employment mismatches (youth unemployment ~20%), and further demand weakness.
Recommended Solutions
- Expansionary Policies: China needs sustained loose fiscal and monetary measures, including a larger budget deficit (beyond the current 3.8% of GDP) and direct subsidies to low-income households to boost consumption and cushion the transition.
- Structural Reforms:
- Reform hukou to ease rural-urban migration, unlocking housing demand and labor flows.
- Convert excess properties into affordable housing to clear inventory.
- Advance land, welfare, and tax reforms (e.g., property taxes, first piloted in 2011 in Shanghai and Chongqing) to address inequality without targeting the wealthy punitively.
- Build a robust capital market to reallocate savings efficiently, supporting private enterprises (which employ 80-90% of workers) and fostering sustainable growth.
- Holistic Approach: Lou stresses that output and investment targets alone are insufficient; reforms must prioritize quality growth amid demographic declines and global headwinds like trade tensions.
Lou’s views align with broader expert consensus on the need for market-oriented fixes over short-term stimulus, though implementation faces political hurdles. His November 2025 prognosis underscores urgency, as unresolved property issues risk prolonging deflation and eroding confidence.
References:
- China’s property slump could hinder growth 5 more years: ex-finance minister
- China’s Ex-Finance Chief Warns Property Bust to Worsen Deflation
- Lou Jiwei says structural reforms are now imperative
- Land, welfare and tax reforms needed to address China’s inequality: Lou Jiwei
- China must relax residency curbs, land rights to offset effect of trade war, former finance minister says