China has today eased policy further aiming its ammunition at the ailing construction sector . It has cut the down payment for first-time buyers from 25% to 20% (in cities without purchase restrictions such as Beijing and Shanghai). The down payment was also reduced last year, by 5 percentage points, in an attempt to support housing.
A major reason behind the economic challenges in China over the past couple of years has been a significant oversupply of houses, which has pushed the construction sector into a very hard landing following years of construction investment of around 20-30% annually (see chart below). Hence, in our view, a key to a recovery in China is to deal with this housing oversupply . Since November 2015, this has been a key policy priority. On 10 November 2015, president Xi Jinping said the government needed to 'draw down the housing inventory'.
Part of the problem with big overcapacity in the steel, cement and aluminium industry relates to the construction stagnation. Hence, turning construction is also key for dealing with industry overcapacity and bad loans in these sectors and so on .
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