As China’s economy grapples with a prolonged real estate crisis, economists are calling for a more aggressive implementation of the government’s housing rescue package, which they believe is crucial for achieving the country’s growth target of around 5 percent. The call for action comes as data released for August raised concerns about whether China can meet its annual growth goal, particularly given the significant impact of the housing slump.
In a recent Bloomberg survey of 15 analysts, a decisive majority expressed that a stronger rollout of the government-led plan is essential. Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd, emphasized the need for a fundamental shift in approach. “A complete change in mindset is required to break the deflationary spiral,” he said, advocating for substantial easing to avoid a contraction in nominal GDP.
The ongoing real estate downturn has had severe repercussions, erasing an estimated $18 trillion in household wealth. The crisis has resulted in job losses for millions, decreased consumer confidence, and reduced demand for various goods, including steel. Despite the introduction of a significant initiative in May aimed at reviving the property market, progress has been slow. The initiative includes a 300 billion yuan ($42.5 billion) funding program from the central bank to assist government-backed firms in purchasing unsold homes from developers. However, this figure falls far short of the 1 trillion to 5 trillion yuan that many analysts argue is necessary for a more impactful solution.
Local authorities’ reluctance to participate in the program has further hindered progress. While the central government urged over 200 cities to engage in the effort, only 29 have agreed to help address the housing surplus. The lack of incentive for local governments stems from the unfavorable economics of the initiative, which makes it difficult for them to absorb the excess inventory.
The Chinese government has also dismissed a nearly $1 trillion proposal from the International Monetary Fund, which suggested utilizing central government funds to complete unfinished housing projects on a large scale. This hesitance reflects Beijing’s strategic shift away from relying on property as a primary growth driver, instead focusing on technology and manufacturing.
Current forecasts indicate that without an extensive stimulus package, the Chinese economy is likely to expand by 4.8 percent this year, a figure that hovers around the lower end of the government’s target range. Furthermore, nominal growth, which considers the impact of declining prices, is projected to be even lower at approximately 4.25 percent.
The survey indicated that alternative measures to bolster the economy, aside from housing support, are unlikely to yield significant results. The pessimistic outlook for the real estate sector suggests that the current downturn could last another two to five years, complicating efforts to rejuvenate economic activity.
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Bloomberg Economics analysts have noted that the current decline in housing activity signals that the rescue package announced in mid-May has not gained much traction. “A sharper drop in housing prices indicates that developers and homeowners are offering discounts to try to offload homes in the weak market,” said Chang Shu, chief Asia economist. “More policy support, particularly in terms of budget spending and property measures, is necessary for recovery.”
Chinese authorities are exploring various strategies to stabilize the real estate market, including allowing local governments to purchase unsold homes using funds raised from special bond issuance, reducing rates on outstanding mortgages, and easing home purchase restrictions for consumers. However, local officials remain cautious as property prices are anticipated to continue their downward trend.
The slow implementation of the rescue plan has failed to halt the decline in new home prices, which fell by 0.73 percent in August—the largest drop since 2014. Investment in property continues to decline at a double-digit rate, while consumption has weakened more than expected, contributing to the longest streak of production deceleration since 2021.
In conclusion, economists are urging Chinese authorities to take decisive action to enhance the housing rescue package, highlighting its vital role in propelling economic growth. As the real estate crisis persists, timely and effective policy measures will be crucial in stabilizing the economy and restoring consumer confidence.
