China pushes property morphine as its economy settles into a bureaucratic coma

(Originally published Feb. 20 in “What in the World“) Foreign direct investment into China last year fell to its lowest since 1993, reflecting the diminishing outlook for the country’s economy and its increasing restrictions on foreign businesses.

FDI in 2023 fell 80% from 2022, to $33 billion, according to data from the State Administration of Foreign Exchange. Chinese companies’ investments abroad rose 3% to $185.5 billion, sending net direct investment to a deficit of $152 billion. Those capital outflows are likely to put further downward pressure on economic growth, liquidity and the value of China’s renminbi.

China’s central bank moved to revive the moribund property market by cutting its 5-year prime rate—which serves as a benchmark for mortgages—by 25 basis points, to 3.95%. The Wall Street Journal reported last week that Beijing is planning a massive bailout of the property sector, in which it will buy up failed projects to arrest falling prices. Curiously, though, the People’s Bank of China left its one-year prime rate—the benchmark for loans to businesses to undertake real growth-generating activity—unchanged at 3.45%.

But what ails China’s economy may go far beyond economic statistics, according to one Wuhan University sociologist. Lu Dewen warned after a recent trip around rural China that the nation faces a crisis of social stagnation, with bureaucracy and formalism undermining grassroots growth. Life is no easier at the bleeding edge: entrepreneurs complain that a regulatory uncertainty and rising bureaucracy are strangling are making life impossible for startups.