Beijing is trying to avoid an economic slowdown, but data still disappoints

Bolstering the flagging property market, Beijing and Shanghai have loosened property acquisition regulations, slashing minimum down payments.

However, even with these actions, unease persists in the broader Chinese economic landscape. The data presented by the authorities reveals that infrastructure investment, such as buildings and road development, only grew by 2.9% in the first 11 months of the year, falling short of the anticipated 3% increase.

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City officials in Beijing and Shanghai have responded to the struggling housing market by relaxing property purchasing guidelines, leading to a decrease in down payment percentages.

Despite these changes, concerns linger regarding the overall economic situation in China. Government-published statistics still show that investment in infrastructure like buildings and roads experienced a mere 2.9% increase during the first eleven months of the year, missing the forecasted 3% uptick.

Enrichment Insights:

Chinese authorities are employing a blend of monetary and fiscal policies to confront the economic deceleration. Here's a rundown of the key measures and their repercussions:

Monetary Policies

1. Interest Rate Drop and Reserve Requirement Adjustments: The People's Bank of China (PBOC) may lower interest rates and reserve requirements in Q1 2025 to preserve Q4's momentum. This could potentially decrease borrowing prices and boost liquidity in the economy.[1]
2. Relending Program: In May 2024, the PBOC unveiled a 300 billion yuan ($41.4 billion) relending program, intending to facilitate 500 billion yuan in loans to corporations controlled by local governments for acquiring vacant homes to develop affordable housing. However, the program's slow implementation and operational restrictions, such as moral hazard and investment returns, have slowed down its use by local governments.[4]

Fiscal Policies

1. Raised Fiscal Deficit: Authorities have agreed to expand the budget deficit to 4% of GDP, providing additional RMB 1.3 trillion for spending. This enhanced fiscal room is intended to support the economic revival and infrastructure development.[1]
2. Long-Term Treasury Bonds: The central government plans to issue more long-term treasury bonds to increase government borrowing and fuel the economy.[5]

Housing Market Measures

1. Policy Relaxation: Since September, Beijing has unveiled its most aggressive stimulus package since the Covid-19 pandemic, encompassing reduced down payment rates, mortgage rate reductions, and a plan to enable local governments to utilize special bonds to absorb land and housing inventory. These measures have been more effective in boosting home sales and stabilizing prices compared to earlier policies, yet they have yet to spur a robust housing market recovery.[2]
2. Direct State Purchases: Experts suggest that the housing market measures should focus on large-scale direct state purchases of unused residences to reduce the surplus of unsold properties. This solution is seen as necessary to halt the decline in the property sector but is faced with financial and operational hurdles.[4]

Impact on Infrastructure Investment

1. Renewable Hydrogen and Green Steel: China intends to produce 200,000 tons of renewable hydrogen daily by 2025 and develop extensive hydrogen infrastructure. Moreover, there are plans for green steel production, signaling a focus on sustainable infrastructure development.[3]
2. Infrastructure Financing: With the increased fiscal deficit and plans to issue additional long-term treasury bonds, additional resources are expected to be allocated for infrastructure projects. However, the emphasis on manufacturing initiatives at the expense of consumer spending remains a concern, as it may not directly address the need to enhance citizens' incomes and fuel overall consumption.[5]

In essence, Chinese authorities' measures aim to stabilize the property market by way of policy relaxation and direct state purchases, while also investing in sustainable infrastructure projects. Nevertheless, the effectiveness of these measures is constrained by structural hurdles and financial obstacles in the property sector.