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Beijing announced some of its strongest moves yet to revive its debt-stricken property sector, encouraging local governments to buy real estate and relaxing mortgage rules as it seeks to boost a recovery in the world’s second-largest economy.
China’s property market has been at the heart of concerns over the economy, with an overhang of unfinished projects sapping consumer confidence and undermining local government finances.
Beijing gave the green light to authorities to buy some residential projects and turn them into public housing. They will also be able to purchase land from struggling developers.
China’s central bank, the People’s Bank of China, unveiled a Rmb300bn ($42bn) relending fund to support such purchases from local state-owned enterprises at a press conference on Friday, saying it would drive up to Rmb500bn of bank lending. Earlier the PBoC lowered the minimum downpayment for first-time homebuyers from 20 per cent to 15 per cent, and said it would scrap minimum interest rates on mortgages.
Vice-premier He Lifeng said: “In cities with a high inventory of commercial housing, the government may need to consider purchasing some [of it] at reasonable prices to be used as affordable housing.”
Beijing has so far mainly emphasised the need to complete unfinished projects, which homebuyers often purchase from developers in advance. Analysts have long anticipated government purchases of housing stock.
Analysts at ABN Amro said in a research note that while the impact of the policies “will depend on effective implementation”, they signal an “increasing sense of urgency to tackle the biggest domestic drag to the Chinese economy”.
Karl Choi, head of Greater China Property Research, BofA Global Research, said in emailed comments that the PBoC’s use of a relending facility was “probably a disappointment to the market”. He also noted its small size relative to national sales, though added it could be more meaningful if focused on tier 2 cities.
The Hang Seng Mainland Properties index in Hong Kong was up 5.3 per cent against a rise of 0.9 per cent for the benchmark Hang Seng index after the announcement.
Chinese policymakers have in the past unveiled lending support measures for the property sector, including credit lines from major state banks unveiled in late 2022, but the approach did not reverse a wider loss of confidence in a housing market that plays a critical role in household wealth in the country.
Beijing has also emphasised supply-side measures, such as investment in manufacturing, to support the economy. “The most important positive shift to us is the leadership’s willingness to correct course, balancing away a bit from focusing solely on long-term supply-side build-up,” Société Générale analysts Wei Yao and Michelle Lam said in an analyst note.
The measures came after China’s National Bureau of Statistics released figures showing further declines in the housing market in April. Property prices in so-called first-tier cities fell by 2.5 per cent year on year.
China’s economy has shown mixed signs of a recovery in recent months, with exports returning to growth in April and some consumption indicators recovering but real estate remaining subdued.
Industrial production grew 6.7 per cent per cent year on year in April, the NBS said, beating a forecast of 5.5 per cent from economists polled by Bloomberg and 4.5 per cent growth in March.
However, retail sales grew only 2.3 per cent from a year earlier, falling far short of an analysts’ forecast of 3.7 per cent and declining from 3.1 per cent growth in March.
The government is stepping up fiscal stimulus efforts, selling the first tranche of Rmb1tn ($140bn) of ultra-long bonds on Friday. Ahead of the sale, a government adviser said the bonds aimed to “give full play to the crucial role of government investment in shoring up economic growth”.
Chinese policymakers’ reliance on investment in industry to offset lagging growth in other sectors was reflected in the NBS data. High-tech industrial manufacturing expanded 11.3 per cent on a year earlier.
But the industrial policy is feeding trade tensions with the US and the EU, China’s most important export markets, which have accused Beijing of pursuing unfair trade practices by stoking overcapacity and dumping excess low-cost goods on its markets. Car production soared 16.3 per cent in April from a year earlier, but sales declined 5.6 per cent.
Additional reporting by Cheng Leng in Hong Kong
This article has been amended to clarify that the government, not the PBOC, is selling Rmb1tn ($140bn) of ultra-long bonds , the first tranche of which was sold on Friday