Breaking News
Black Friday SALE: Up to 54% off InvestingPro! Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Analysis-China likely to keep property curbs despite slowdown, may soften tactics

EconomyOct 14, 2021 06:31AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: A man rides a bicycle next to a construction site near residential buildings in Beijing, China, January 13, 2021. Picture taken January 13, 2021. REUTERS/Tingshu Wang/File Photo

By Kevin Yao

BEIJING (Reuters) - Chinese leaders, fearful that a persistent property bubble could undermine the country's long-term ascent, are likely to maintain tough curbs on the sector even as the economy slows, but could soften some tactics as needed, policy sources and analysts said.

President Xi Jinping looks determined to press ahead with the latest round of property tightening even if it adds to near-term pain, in contrast to previous campaigns which tended to be watered down when economic growth began to falter, they said.

Xi’s resolve stems from a longer-term structural push to reduce the economy's reliance on property and debt and channel more resources into high-tech manufacturing and other emerging sectors to drive growth.

Despite rapid expansion of other industries in recent years,

the property sector, along with related sectors such as construction, still accounts for more than a quarter of China’s gross domestic product (GDP).

The world's second-largest economy has staged an impressive rebound from the pandemic but there are signs the recovery is losing steam. Widening power shortages are adding to the pressure from property restrictions, raw material shortages, supply chain disruptions and weak consumer spending.

Global worries about a possible spillover of credit risk from China's property sector into the broader economy also have intensified as major developer China Evergrande Group wrestles with more than $300 billion of debt.

Liu He, Xi’s top economic aide, has repeatedly warned against financial risks, while Guo Shuqing, head of the banking regulator and party chief of the People's Bank of China (PBOC), has said property is the country's biggest “grey rhino”.

"Grey rhino" refers to an obvious, significant threat that is often ignored until it is too late.

"Property curbs will be painful, but this is a price that needs to be paid," said a source who is involved in internal policy discussions.

"In the past, we always loosened controls due to economic downturns, but this time round the leadership's determination looks very firm."

The State Council Information Office and the PBOC did not immediately respond to Reuters' requests for comment.

RED LINES IN THE SAND

Despite numerous campaigns over the years to curb hot property prices, housing in China has grown increasingly unaffordable, hampering Beijing's efforts to boost birth rates and address the rapid ageing and slowing growth of its population, analysts said.

Officials ratcheted up the latest property curbs in August 2020, when the PBOC introduced new measures to closely monitor and control the debt levels of developers - setting "three red lines" to curb their borrowing and contain debt risks.

But the price of policy mistakes would be high, given the size of the industry, its importance as a revenue source for local governments, and risks to social stability in the event of a rapid plunge in home prices. Many Chinese have never seen an extended property slump.

"We should prioritise stability in the property sector. We don't want to see property prices rising rapidly, nor do we want to see many property developers going bankrupt," Zong Liang, chief researcher at Bank of China, told Reuters.

MARGINAL CHANGES STILL POSSIBLE?

While the PBOC is likely to maintain its pressure on developers to reduce debt and clean up their balance sheets, some marginal policy changes may be possible to correct excessive credit tightening by some lenders, insiders and analysts said.

Last month, as Evergande's debt crisis intensified, the PBOC said it would safeguard the legitimate rights and interests of home buyers.

"The 'three red lines' are unlikely to change, but the implementation of the rules could be loosened a bit," said Lian Ping, chief economist at Zhixin Investment.

"The standard on property loans won't be loosened, but the scale of such lending could be increased somewhat," he said.

Banks also could be given more leeway to lend to genuine home buyers as opposed to speculators, and healthier developers could get more support, analysts said.

"Amid the worsening slowdown, we expect Beijing to step up fiscal and monetary easing measures, though it will largely stick to its tightening stance on the property sector and those with high carbon emissions," Ting Lu, chief China economist at Nomura said in a note.

However, some local governments may introduce some minor easing measures, focusing on lifting local restrictions and adding some subsidies, Lu said.

The PBOC, meanwhile, has been funneling more credit into the manufacturing sector in recent months, at the expense of the property sector.

Outstanding medium- and long-term loans for the manufacturing sector rose 41.6% year-on-year in June, quickening from a 24.7% rise a year earlier, while growth of outstanding loans for the property sector slowed to 9.5% in June from 13.1% a year earlier, central bank data showed.

Analysis-China likely to keep property curbs despite slowdown, may soften tactics
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email