(Bloomberg) — China’s housing rescue package offers the best path for putting the country on track to expand around 5%, in the view of most economists, assuming it’s deployed to maximum effect in the face of a real estate crisis expected to last as long as five more years.
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Among the policy options considered by 15 analysts in a Bloomberg survey, a more forceful implementation of the government-led plan was the top choice of a majority of respondents. The poll followed the release of data for August that deepened doubts over whether the economy will meet Beijing’s annual growth goal.
“A complete change in mindset is required to break the deflationary spiral,” said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd. “A massive easing is needed to avoid a contractionary nominal GDP.”
The years-long real estate slump that’s wiped out an estimated $18 trillion in wealth from households has been the single biggest challenge faced by the Chinese economy. It’s cost millions of jobs, ravaged consumer confidence and brought down demand for products like steel.
Yet four months after China unveiled its most far-reaching attempt to revive the property market, progress has been slow on plans that include a program to provide 300 billion yuan ($42.5 billion) of central bank funding to help government-backed firms buy unsold homes from developers. Unemployment has worsened in the meantime, with the youth jobless rate rising for the second straight month in August to its highest level this year.
Designed to reduce the inventory glut, the package of measures is far short of the 1 trillion to 5 trillion yuan that some analysts said was needed to deliver a more decisive fix. And given the unattractive economics of the plan for local authorities, only 29 cities are heeding the call to help absorb an excess of housing, a fraction of more than 200 urged to participate by the central government.
China has dismissed as risky and overly expensive a proposal — with a price tag of almost $1 trillion — made by the International Monetary Fund to use central government funds to complete unfinished housing on a large scale.
Authorities have been unwilling to extend more support to the housing sector, in part, because of Beijing’s resolve to shift the economy’s growth driver away from property to technology and manufacturing. The government has urged banks to lend to developers and stalled housing projects, while stopping short of providing direct funding.
Fiscal policy has been a drag on economic growth this year — a broad measure of government spending fell an annual 2.9% in the first eight months of 2024, accelerating from a 2% drop in the seven months through July, according to the latest government data. A plunge in revenue from land sales has been a particular drain on budgets, with the earnings slumping a record 41.8% in the January-August period.
Target Undershoot
Without a stimulus blitz, the Chinese economy is expected to expand 4.8% this year in real terms, according to the median forecast of economists in the survey, falling roughly at the lower end of the government’s target range. But nominal growth, which factors in the impact of declining prices, will likely come far lower at 4.25%, they estimate.
Measures other than housing support will likely prove less effective in giving the economy a push, the survey showed. Four of the economists favor encouraging local governments to use their bond quotas, two voted for rate cuts, and one chose a budget revision to unleash more public spending.
Meanwhile, China’s property gloom is projected to last another two to five years by eight economists in the survey.
What Bloomberg Economics Says…drag
“The extended decline in housing activity indicates the rescue package announced in mid-May has failed to get much traction. A sharper drop in housing prices suggest developers and homeowners are offering discounts to try to offload homes in the weak market. More policy support in the form of faster implementation is needed — especially on budged spending and property measures.”
— Chang Shu, chief Asia economist, and Eric Zhu, economist. For full analysis, click here
Chinese authorities are considering various ways to shore up the real estate market. That includes letting local governments buy unsold homes with funds raised from special bond issuance, reducing rates on outstanding mortgages, and removing some of the remaining home purchase restrictions for consumers.
Local officials have been cautious because property prices are expected to slide further despite previous plunges, while estimated returns from turning inventory into affordable rental housing are below the cost of funding.
In a sign the slow roll-out of the rescue plan has failed to put a floor under the downturn, new-home prices in China fell 0.73% last month from July, the biggest decline since 2014.
Property investment continued to decrease at a double-digit rate, while consumption weakened more than expected and a deceleration in production notched its longest slowing streak since 2021.
“Policymakers have so far chosen to stay the course and roll out steady drips of policy support.” said Erica Tay, an economist with Maybank Investment Banking Group. “The time has come for a forceful, front-loaded fiscal boost.”
(Updates with detail, background.)
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