Home groan: China’s housing-sector crisis

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Let's go for a little ride, shall we? Not in a car. No, not even in a bus or a truck, but in a robo taxi. The self driving cars are a polarizing topic in California. But with expansion on the horizon, we chat with our correspondent to see if he's on board.

And the sea ice in Antarctica comes and goes with the seasons. The amount that it goes in the summer has long worried climatologists. But there's a newer, worrying trend. It's not coming back as much, even in the continent's winter. First up though, Country Garden, one of China's housing giants, is looking shaky. And that creates worries right across the Chinese economy. Housing markets are always a reasonable chunk of the economic system. But in China, that chunk is enormous, accounting for perhaps 30% of the country's GDP. That's why last year when the heavily indebted housing firm Evergrande defaulted, it sent shivers through the spines of everyone from government officials to home buyers. The thing is, for the average Chinese citizen, there's not a lot of places to invest. Access to stock markets is tricky and access to international markets all but impossible. So savers invest in housing, often putting down huge sums for homes not yet built. And when they have reason to lose faith in those investments, they lose faith in the economy as a whole.

We're moving into the next stage of China's long running housing crisis.

Don Weinland is the Economist's China Business and Finance editor.

And it's just one of many problems that are hitting the Chinese economy right now.

You say it's a long running housing crisis. Let's wind back a bit. What's going on in that score?

So if you look back over the past couple decades, China's housing market has been one of the cornerstones of the economy. And it's really just gone from strength to strength. Housing prices have been increasing very, very quickly. Many people have been putting their money into housing with the idea that prices would only go up. So it's always been a very Safe bet. In 2020, the government decided to crack down on leverage in the sector, which is incredibly high. And since then, things have gone very poorly for the housing sector. Some of the biggest companies, such as Evergrande, have come tumbling down. EverGrande defaulted in 2021, and it's really just gotten worse and worse since then.

And what is it that's brought this back to the fore now?

So the thing that everybody's talking about right now is this company called Country Garden. If you look back at the beginning of the housing crisis, everybody was very worried about companies like Evergrande. And you know, there's a long list of names of troubled companies. Country Garden was always cited as being a strong developer that was not going to succumb to the same problems as these other highly leveraged, weak developers. But lo and behold, on August 6, Country Garden missed a coupon payment to some of its investors. It has until early September to make that payment. But, you know, the damage has been done. You know, its bonds are trading at pennies on the dollar before they were halted. And it's really causing a bit of a panic, not just in the housing market, but in, you know, across markets in China. So in the stock market, and I think just generally for households, people are very worried about this.

And we talked a lot on the show last year about Evergrande when it defaulted on its debts. And that essentially was because it had too many of them. Is that what's going on with Country Garden?

So one thing that's, that's quite interesting and perhaps very destabilizing about Country Garden is that about 50% of its liabilities come from average people that have prepaid for their homes. So what that means for a company like Country Garden is that it owes average people lots of homes. I mean, just to give you a sense of the scale of Country Garden compared to Evergrande, when Evergrande began having problems in 2021, it was building about 700 property developments across the country. Country Garden has well over 3,000. So one economist believes that there's about a million homes that Country Garden is building right now. When you zoom out and look at the bigger picture here is that you have a company that's struggling to repay not just its bondholders, but it may very well struggle to build the many, many houses that it owes to people across the country. And that is, it's not just a big problem for those homebuyers. It's a problem for the government as well.

What do you mean by that? What are the onward fears?

Well, if the homes don't get built, people are naturally very upset about that. I mean, many people pile their life savings into new homes. But there's a lot else going on here. So some analysts are concerned that the supply chains, you know, the materials producers and the contractors that actually work on the ground and build homes, that entire supply chain could come under stress. So there's a lot of big companies that operate in that supply chain. Another problem is this lack of confidence, this crisis of confidence spreading from private developers like Evergrande and Country Garden into the state sector. So since the beginning of the crisis, people have look to the state and state home builders as a safer place to buy homes. There are some signs now that state developers are also struggling. There's one called Sino Ocean that recently has shown some signs of struggling to repay its debt. So that could be another dangerous escalation in this crisis.

So if it's about to be a government problem, what's the government doing about it?

The government has been relatively active this year in trying to get things moving again. One of the biggest criticisms of the government is that it's been slow to bring some of these plans together, but it's actually picking up this year. So what it's doing is it's trying to make sure that cities have enough money to continue building homes. So, for example, if a local developer is struggling, the local government could come in, take over the project, and continue building the homes with. With funds that are raised on the provincial level or on the city level. So this is kind of like a bailout for the home buyers themselves.

So it's not one big bailout of one big company, but it is a great many smaller bailouts, isn't it?

That's correct. Some people say an easier way of handling this would be to show support for the companies themselves and to stop a company like Country Garden or Evergrande from collapsing. But, you know, that would kind of go against the initial ideology behind what's been going on in the Chinese property market. So this. This crackdown on leverage that we were talking about earlier, that would kind of undo a lot of the work that the government has already been doing on that front. So they have not come in and bailed out a property company specifically, which may very well pay off in the long run. But what that's creating is lots of small problems all around the country that need to be dealt with on the local level. And this can be really tough. So these big developers, they're masters of their supply chain. You know, they've been doing this for decades, and they're very good at building homes. It's much more difficult when you bring in local governments and have them trying to organize this type of construction.

And when we were talking about Evergrande last year, there, there were fears of a kind of wholesale collapse of the. The whole industry. How bad do you think things could get on the basis of where we are now?

So the fact that we're actually talking about Country Garden defaulting right now is a sign that it's already very, very bad. Just a couple of years ago, Country Garden's financials were not that bad themselves. The fact that people have stopped buying homes is really what is hurting Country Garden. They don't have the income they need to continue building. So if we think about this big picture, the housing market has provided a sense of economic stability to Chinese people for decades. And as that comes undone, the sense of stability here is starting to fall away.

So this crisis that started in the housing sector really could mean a cold for the entire Chinese economy.

The entire Chinese economy has already caught a cold from. From the housing market. You know, it makes up up to 30% of GDP. So naturally, if there's a downturn in the housing market, the Chinese economy is going to underperform expectations. And this just adds to all of these other problems that the geopolitical tension, the tech war that's going on with the US Right now just adds to all of these factors that are bringing down growth in this country.

Don, thanks very much for your time.

Thank you.

Hi there. My name's Guy Scriven. I'm the US Tech Editor at the Economist, and I'm here with Our producer, Maggie. Hi, Maggie.

Hi, Guy. How are you?

Yeah, very good, thanks. Very good. I'm actually quite excited because we are about to take a ride in a self driving taxi. We're here in Noe Valley, which is a kind of sunny, family friendly neighborhood in San Francisco. So I need to go to a pharmacy. I might go and pick up some milk and see what it's like doing your chores in a self driving car. I'm looking at the Waymo app. So Waymo is one of the two self driving taxi companies here in San Francisco. The other one is Cruise. The app is basically exactly like an Uber app. We're just ordering a self driving car now. That's it over there by the bus. Is it in the way of the bus? No, I think it's just so on top of it, it's got loads of sensors and detectors and right on top of all of that is a big cone which is flashing up my initials at the moment, which actually I think is quite cool. So it says GS in big letters on top of it. Great. So here we are. And I'm pressing the unlock button on the app. I'm going to open the door.

Hello from Waymo.

Okay, I'm pressing start.

Right.

Just give us one minute to cover.

A few riding tips.

And away we go. So you can see the steering wheel turn round and round and kind of adjust as we go. We had to stop for some pedestrians to pass over the road there. The Waymo didn't knock them over or anything, so that's very good.

And they were jaywalking.

They were jaywalking. Yeah, yeah, yeah. And then we've had to slow down here to let a car out of the local Whole Foods. And we're off again. It seems basically to be quite a cautious driver so far. It stops pretty early on when it kind of sees hazards. Just kind of going up some more hills, stopping here at another intersection.

It doesn't do the California roll where you glide through a stop sign, does it?

No, no it doesn't.

So we're on like a, it's like a three lane road now. A bit busier than kind of the neighborhood streets we were on before.

And we're heading east towards the center of the city.

And look, there's a, there's a cruise, which is the other electric vehicle that's just ahead of us.

Oh, yeah. Oh, whoa. What have we done here? We've decided to stop in the middle of a crosswalk with lots of people walking around us. I think if you did this in A driving test, this would be a fail. I think CVS pharmacy just here. I think we're gonna. Where are we gonna park up? Things gonna go around the corner. Okay, we're pulling up. Yeah. And we're stopping in. We're stopping underneath a sign that says tow away. No stopping except for 30 minutes commercial vehicles. So I don't know if that's us, but we probably ought to get out the car before it gets towed. Let's go.

So, Guy, now you're off the road and back in. Hopefully a less hectic office. Where did this interest in autonomous vehicles come from?

So it's always been a kind of area of interest for large technology firms. Driving is particularly unsafe in America and so a lot of companies have been developing self driving car technology. And San Francisco is one of the cities where you can actually hail an autonomous taxi and kind of drive around the city in it. Recently, the California Public Utilities Commission, which is an agency that regulates privately owned public utilities for California, made a decision to allow basically more driverless taxis on the streets of San Francisco. So up until this point, the two big driverless taxi companies, which are Cruise and Waymo, had kind of limited ability to serve customers. So Cruise was only allowed to operate at night. And Waymo didn't charge for rides, it gave rides out for free. And so the decision by the California Public Utilities Commission basically allows both of these companies to run their services 247 and to charge customers.

And how do San Franciscans feel about having these robo taxis on their roads?

Well, it's been quite a polarising topic here. At the hearing for the California Public Utilities Commission, there was a lot of discussion about the drawbacks of having these robo taxis around. There are three big buckets that people are worried about. The first one is safety. Robo taxis seem to be getting in the way of emergency responders.

We heard the first responders the other.

Day and we saw the charts. This is a danger to the citizens of San Francisco.

Block the fire truck, block the police cars. They stop in the middle of the interstate.

There are very clear issues they have.

Come up many times. That says to me that it's pretty obvious we need some rules, we need some regulations, we need some more safety.

Shortly after we took out a taxi the other day, one of the cruise cars had a collision with a fire truck. Cruise afterwards said that their taxi had successfully identified the vehicle and also noted that the intersection was a particularly challenging one for humans and robots alike. Another area people are worried about is jobs in San Francisco. There are Lots of people who make their living driving Ubers and they're worried that the robot taxis will come and take their jobs. And then there's a third set of concerns which is a bit less serious, but boils down to the fact that these taxis just get in the way next door, which is a social media app where people discuss local issues. If you go on there almost any day of the week, you'll see people complaining that a whole fleet of them would stop inexplicably in front of a shop, or a big group of them would drive into a cul de sac and sit there for a while.

Okay, so those are some of the problems, but surely there are some benefits, right?

One really big benefit is that San Francisco, like a lot of other American cities, doesn't have a very extensive public transport system. And so it can help lots of people get around much more easily. Bruce sent me a letter that was signed by lots of disability activists saying that they were in favour of having more of these self driving cars because it helps them with transportation and people certainly are really interested in at least trying them out. Waymo and Cruise have really long waiting lists. There's a huge amount of demand for these kind of services.

Okay, so Guy, if I understand this correctly, one of the original reasons for Robo taxis to make the roads safer, how well have they actually achieved that?

The principle of robots being safer drivers overall than humans kind of makes sense. They are much harder to distract. They can calculate things a lot quicker. At the moment, the self driving car companies have a bit of a publicity problem. The Cruise crash recently is quite bad news for them. Lots of people here in San Francisco are talking about it. It's brought up this issue of are these cars safe to be in? Both from a passenger point of view and, you know, are they actually just a nuisance to the emergency services? But I think in the longer run the technology is quite promising. But I think it's still quite early days for these car companies and I think it's essentially on them to try to demonstrate that the self driving taxis are better drivers than humans.

And what about these companies like Waymo? Are they making any money off of these?

They're not making that much money yet, but I think it is a big business opportunity. One revenue stream is the kind of obvious one where you charge people rides. But I think the bigger opportunity here might lie somewhere else. Americans spend about six hours each week driving around and I think what companies are really after is to win the attention of consumers in that time so they can offer them in car entertainment systems or sell them kind of software to go in their car that consumers can use during that period of time where they currently are driving. So I think that's why a lot of companies are investing money in this area.

Guy, thank you so much for coming on the show.

Thanks, Uri.

Right now it's winter in Antarctica. The days are short and dark and the weather is bitingly cold. It's a time when the frigid seas around the frozen continent are north, normally forming into ice. This Antarctic sea ice plays many vital roles. Its bright surface helps reflect back the sun's warming radiation and helps keep both the air and water temperatures cool. And it serves as a habitat for animals like seals and penguins. But in another worrying sign for our warming world, the sea ice levels this year are at an all time low.

When the Antarctic sea ice cover fell to 1.8 million square kilometers this year in February, the smallest extent since satellite based data has become available in 1978, few climatologists were surprised.

Marie Segur is a data journalist at the Economist.

With climate change underway, such records fall frequently. They did so a year before and in 2017. But now Antarctica has moved into its winter. So the sea ice should be expanding rapidly at this time of year, but it just isn't.

So how did the levels of ice end up so low this year?

So the ice is in constant flux. During the winter it grows, during the summer, it melts. But as I mentioned, in January and February this year it was at a record low. But usually Antarctica gains back much of its sea ice levels during winter, and scientists expected it to grow back relatively normally. And at first, that is what happened. In March, as Antarctica came out of its summer, ice cover in Antarctica began bouncing back at a rate close to the historical average. But then towards June, the ice growth suddenly slowed. And by July 6, Antarctic sea ice was around 2.8 million square kilometers smaller compared with the average for that date between 1981 and 2010. And to give you a sense of that scale, that is about as large as Argentina or Kazakhstan.

And has this shocked scientists?

Yes, especially because unlike the Arctic, where the maximum sea ice extent has been gradually shrinking, the range of ice cover in Antarctica has been relatively stable during the past half century. And between 1976 and 2014, the average area covered by mid winter sea ice in the region actually grew slightly. So the current changes are really unusual, not just in their timing, but also in their scale.

So is this all a result of climate change then?

At the moment, it's really too early to tell for sure. The lack of sea ice this year could represent climate change or an unusual confluence of temporary factors. One of the leading short term explanations that go beyond climate change is there's been a really unusual pattern of wind and waves that has happened this year. So throughout June and July, there have been different winds that have been traveling from the Ballinghausen Sea towards the South Pole. And this could have helped to prevent the ice from forming near the Antarctic Peninsula. And weather systems and storms that are brought about by the El Nino Southern Oscillation and the Southern Annular Mode may have also played a role in breaking up sea ice in East Antarctica. But it's not just the winds and storms. Warmer water is also likely to blame. Recent research suggests that since 2016, an increase in the Southern Ocean's average temperature has caused Antarctic sea ice to shrink. This pattern may stem from overall atmospheric warming, but it could also result from a variation in normal cycles of heat transfer between deep and shallow parts of the ocean.

Okay, so it could go back to normal levels next year.

Perhaps. But even if the ice cover eventually returns to recent norms, its vanishing act this year is in line with scientists long run expectations. So based on current forecasts for global air temperatures, climate models predict that the extent of Antarctic sea ice will shrink during the second half of the century.

And so what would the consequences of less Antarctic sea ice be in the long term?

So they're actually quite scary. Although the disappearance of floating sea ice does not affect sea levels directly, it could accelerate the loss of glaciers on the continent. And that's because the sea ice helps keep the edges of Antarctica cool by reflecting sunlight. But without the ice there, the amount of energy absorbed by the ocean goes up, which increases both air and water temperatures. And the ring of sea ice around Antarctica also holds in place the continent's coastal ice shelves, which in turn do the same for its glaciers and the ice sheets. And if those ice shelves were to collapse, as the Congo shelf in East Antarctica did in 2022, the gates would open for continental ice to flow rapidly into the oceans. The western Antarctica ice sheet alone contains enough water to increase global sea levels by 3.3 meters, or 11ft. And you know, with millions of people living only a meter or two above sea level, you don't need to have much imagination to think of the consequences that could bring.

Marie, thank you for joining us.

Thank you, AR.

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