China's Housing Conundrum

CAMBRIDGE – The impending bankruptcy of Chinese real estate giant Evergrande, with its $300 billion in debt, has roiled global investors. Analysts have focused mainly on whether the Chinese government will succeed in ring-fencing the problem, so that it does not spill over into a broader Western-style financial crisis.

Given the government’s deep pockets, including over $3 trillion in foreign-exchange reserves, and its ability to dictate restructuring terms without long court delays, few would bet against such an outcome. But concentrating only on near-term financial stability misses China’s larger challenge: rebalancing an economy that has depended for far too long on its massive real estate investment sector for jobs and growth.