According to George Magnus (economist and research associate, China Centre at Oxford University), the debt issues facing China’s property industry are likely to lead to a period deflation that will affect both the global and domestic economies.

Hong Kong listed shares of Chinese property developer Kaisa Group Holdings were halted on FridayIt received news it had failed to pay a fee for its wealth management products. The company was informed by the protracted saga involving debt-ridden developer China Evergrande Group

Of the challenges facing the world’s second-largest economy in the coming years, Magnus argued that debt — relating to the property sector in particular — could be the most problematic.

Magnus stated that “I believe it is the credit that really is the most urgent, and I think this can be seen in the property sector which is kind of a metaphor to what’s happening in the rest of Europe among local governments, state enterprise and so forth.”

“I feel that the real estate market has hit a turning point now,”

Magnus suggested that Beijing could no longer be willing and able to help the Chinese market expand after two decades’ worth of development.

CNBC reached out to the Chinese Embassy in London but was not immediately able to get back to them.

He stated that “Now, it has gone pear-shaped again” and that the government didn’t want the credit accelerator to be pressed again because of potential financial instability.

They are stuck. “I expect that they will attempt to help out the property industry this year and in 2022 prior to the congress in November. However, I feel the market is in a bit of a bind.

research paperPublished by Yuanchen Yang and Kenneth Rogoff (respected Harvard Professor of Economics and Public Policy) in August 2020, the report estimated that China’s real-estate sector contributes around 29% to its GDP.

It includes services such managing, renting, and buying housing, as well as other inputs like commodities and consumer durables.

Magnus explained that 29% of GDP “just marks time” and that it could decline over the next ten years.

“The leverage has basically driven that market, and companies such as Evergrande… over the past 10 or 15 year. I don’t believe that will continue to happen in the near future. This is not possible.”

These are his comments. Texas A&M Economics Professor Li GanAccording to a report by Xie, the Chinese real-estate sector must shrink in order for the economy to remain stable and strong.

Gan said that China has 20% vacant housing stock. Buyers are taking second and third homes as investment opportunities, while thousands of developers build new buildings each year as a result of decades of excess borrowing.

Yen Nee Lee (CNBC), Weizhen Tan, Evelyn Cheng and Evelyn Cheng all contributed to the report.