Property in China experienced two decades of meteoric growth alongside rising living standards across the country and long accounted for more than a quarter of China’s GDP.
But the sector has become emblematic of the challenges facing the wider Chinese economy — overpowered by cheap debt and roaring demand, millions of unfinished homes now lie empty.
Debt to rights
Despite official efforts to offer fresh support, “the property sector has shown no signs of recovery”, said Ting Lu, chief China economist at Nomura.
Tuesday’s government work report promised greater steps — more investment in government-funded housing, efforts to assist in the “justified financing demands” of real estate firms, and a vaguely defined “new development model” for real estate.
“The property sector will likely remain a prolonged drag on growth,” according to Lynn Song, chief Greater China economist at ING.
But economists were hoping that Beijing would signal a move beyond its traditionally cautious approach to bailouts — what Chinese Premier Li Qiang this year likened to seeking “short-term growth while accumulating long-term risks”.
“Fiscal policy has to turn more expansionary than last year,” Larry Hu, chief China economist at the Macquarie Group, told AFP.
Beijing, he said, needs to “stabilize the property sector, with the government to step in as the buyer/lender” of last resort.
For many, Beijing’s refusal to budge this year on its fiscal deficit-to-GDP target — kept steady at three percent — was a sign that big-ticket bailouts were not on the cards.
That goal “fell below expectations and signalled a cautious approach to fiscal policy”, Stephen Innes, managing partner at SPI Asset Management, said in a note.
That’s not to say that there is no help at all.
Tuesday’s work report laid out 3.9 trillion yuan ($541.8 billion) in special-purpose bonds to be issued to shore up ailing government finances — an increase, it said, of 100 billion yuan over last year.
On top of that, officials pledged an additional one trillion in “ultra-long special treasury bonds” for funding other major state projects.
Those packages will “give an extra boost”, said Sarah Tan, an economist at Moody’s.
“Local governments have felt the pinch from the woes in real estate given that a bulk of its revenues came from land sales to developers,” she said.
“The dried-up revenue source has hindered the government’s ability to support the sector in its darkest hour.”