September 6, 2023
BEIJING – Support: Measures ramped up to boost real estate market
China could carry out further property market easing and introduce more sizable fiscal support for infrastructure investment, in order to help the country’s economic growth to pick up from the fourth quarter of this year, experts said on Tuesday.
Faced with the dual challenges of slackening domestic and external demand, China should now fully utilize the policy space to decisively shore up economic growth and prevent insufficient demand and weak expectations from forming a vicious cycle that reinforces each other, they said.
Latest data shows that China’s economy continues to recover but the problem of sluggish demand remains prominent. With new export orders contracting and the growth in new orders slowing, China’s services sector expanded last month by the slowest pace in eight months, a private survey showed.
The Caixin China General Services Purchasing Managers’ Index fell to an eight-month low of 51.8 in August from 54.1 in July, media group Caixin said on Tuesday. A PMI reading of above 50 points to expansion, while one below that mark indicates contraction.
A property market downturn is seen as one of the key drags on domestic demand. The government has ramped up efforts to shore up the sector by lowering down payments and reducing the interest rates of new and existing mortgages, along with other measures to strengthen the broader economy, such as cutting stamp duty and personal income tax.
“Recent policy moves suggest an increased sense of urgency from Beijing, and more sizable easing could come in the next three to six months,” a Morgan Stanley report said, describing the recent pace of introducing stimulus as something “not seen since late 2018”.
The trend of the government scaling up support has reinforced Morgan Stanley’s conviction that China’s economic growth could improve from the fourth quarter, the report said, though the sustainability of the pickup may hinge on fiscal easing and debt resolution of financing vehicles of local governments.
“To put the economy on a stronger recovery path, the most urgent task is to prevent property activities from sliding further,” said Wang Tao, chief China economist at UBS Investment Bank.
Necessary efforts include further relaxing purchase restrictions and lowering mortgage rates, providing more credit support to property developers and expanding special funds to ensure housing project delivery, Wang said.
The People’s Bank of China, the nation’s central bank, vowed in its second-quarter monetary policy report to adjust real estate policies in a timely manner in response to significant changes in the market.
Also, fiscal policy support would need to be increased to counter the property market downturn and fall in external demand, Wang said, adding that the government may accelerate special local government bond issuance and expand policy bank lending to boost infrastructure investment.
“The government is likely to push forward with another round of infrastructure stimulus, most likely paid for by raising the local government special bond quota,” said David Chao, Invesco’s global market strategist for the Asia-Pacific, excluding Japan.
Chao said that he expects modest improvements in economic growth through the second half of the year, given the additional policy easing and a bottoming out of pressures on exports.