China injects nearly half a trillion dollars into the strained real estate sector, yet it falls short of the necessary amount.
Following disappointing economic figures during the summer, there was worry that China might fail to achieve its 5% growth rate target. Eventually, leader Xi Jinping decided to implement a necessary stimulus package, primarily focusing on monetary strategies, towards the end of September.
Since then, experts have anticipated an additional stimulus package worth roughly 10 trillion yuan ($1.4 trillion) to revive optimism in the world's second-largest economy. However, Thursday's statement from the Housing Ministry fell short of these expectations.
As Larry Hu, chief China economist at Macquarie, told CNN, the housing initiatives announced that day were only incremental in nature. While they might alleviate financial stress for developers, they might not be sufficient to revive the housing market.
Investors concurred, leading to a 5% drop in shares for China's primary CSI300 real estate index, reversing multi-day increases. The Shanghai Composite index remained stable, while the Hang Seng index in Hong Kong increased by half a percent, giving up its earlier-day gains.
During the conference, the Ministry of Housing and Urban-Rural Development pledged to nearly double bank lending to designated property projects, reaching four trillion yuan ($561 billion) by the end of 2024.
In January, China introduced a "whitelist" of construction projects, allowing banks to provide loans to help complete them and hand them over to buyers.
"We are optimistic about the recovery of the real estate market, and our focus will be on implementation moving forward," stated Housing Minister Ni Hong.
Xiao Yuanqi, deputy director of the Financial Supervision Administration, added during the event that by October 16, approved loans for "whitelist" real estate projects had already reached 2.23 trillion yuan ($313 billion).
Widespread concern
The struggling property sector is commonly thought to be the source of several of China's economic issues. At one point, it accounted for up to 30% of economic activity. Currently, it makes up about a quarter of the Chinese economy and 70% of household wealth.
In September, central bank governor Pan Gongsheng aimed to alleviate widespread concern about slowing growth by announcing reductions in one of its main lending rates, the seven-day reverse repo rate, from 1.7% to 1.5%. He also cut the reserve requirement ratio for banks by half a percentage point, which would make about 1 trillion yuan ($142 billion) available for new lending.
Additionally, he revealed mortgage rate reductions and decreased minimum mortgage downpayments for second-time homebuyers from 25% to 15%. The real estate market began to decline in 2019, falling into a deep recession around two years later following a government-led crackdown on developers' borrowing.
The resulting crisis has resulted in significant reductions in real estate prices and consumer confidence loss. Individuals and firms have been attempting to secure their wealth by selling assets and reducing consumption, which has negatively impacted economic growth.
The implementation of another stimulus package to boost the struggling economy is being widely discussed, with a focus on revitalizing the real estate sector. This potential package could inject an additional 10 trillion yuan into the economy.
The concerns over China's economic growth rate and the struggling property sector have led some experts to suggest the need for a comprehensive business strategy, potentially including another stimulus package.
