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In the latest episode of “What’s Happening in China’s Property Market?” investors watched in horror as Chinese property shares took a nosedive faster than a bad real estate listing on a Monday morning. The much-anticipated miracle measures from officials to revive the ailing real estate sector were so meager they might as well have been handed out from a fortune cookie.
It seems that after months of economic dread—like peering into a crystal ball that shows nothing but broken dreams—leader Xi Jinping finally decided to sprinkle a little financial fairy dust with a stimulus package in late September. Alas, exactly what that fairy dust covers remains a mystery, given the piecemeal measures that left economists shaking their heads in disbelief, not entirely unlike watching a cat trying to fit into an oversized box.
Following these lackluster announcements, analysts had pinned their hopes on an additional stimulus worth up to 10 trillion yuan (that’s a cool $1.4 trillion for our Western friends) to revive the sluggish growth of the world’s second-largest economy. But when the Housing Ministry took the stage, it was akin to a magician revealing a mere card trick after promising a full-blown illusion: no rabbits, no hats, just a vague puff of air.
Larry Hu, chief China economist at Macquarie, summed it up nicely: “The housing supports announced today remain incremental in nature,” he mused. In other words, they might ease developer distress about as much as a Band-Aid eases a compound fracture. Investors threw a collective tantrum, and the CSI300 real estate index did a dramatic dive of 5%, erasing days of glimmering hope like a toddler wipes their mouth after a big bowl of spaghetti.
While on stage, the Ministry of Housing declared a grand plan to double bank lending for property projects to a staggering four trillion yuan (about $561 billion) by 2024. It’s as if they’re tossing billions around like confetti at a New Year’s Eve party, hoping something will stick to the wall and miraculously pull the real estate sector from its black hole of despair.
If you rewind to January, China had launched a “whitelist” of projects that actually made some banks think, “Hey, these could be winners!” You know, lending money to projects that look like they might exist one day. Fast forward to now and we have Housing Minister Ni Hong strutting his confidence on stage, proclaiming a future of real estate recovery. “(We’re) full of confidence in the recovery of the real estate market,” he proudly stated. Either he’s seen an undetected miracle or is just exceptionally optimistic—either way, it’s one heck of a show.
Meanwhile, Xiao Yuanqi, the deputy director of the Financial Supervision Administration, stepped up and casually mentioned that as of just two days ago, the approved loans for these “whitelisted” projects have already reached 2.23 trillion yuan. That’s $313 billion funneled into places that are supposed to be the next big thing, assuming they can finish the renovations on time—which is about as certain as that one friend who says they’ll be ready “in five minutes.”
Of course, the root of all this financial mayhem lies deep within the property sector, which curiously once accounted for around 30% of China’s economy. That figure has since plummeted to about 25%. It’s as if this sector took a long, hard look at itself in the mirror and realized it might have hit the “pause” button all too soon, leaving household wealth in shambles.
In September, the central bank’s governor Pan Gongsheng attempted a rescue operation by cutting the seven-day reverse repo rate and lowering reserve ratio requirements faster than most people can order takeout. And because it’s never too late to make thing more complicated, the minimum mortgage down payment for repeat homebuyers was slashed from 25% to 15%—yes, that’s one less financial hurdle for buyers, but you have to wonder, how low can this rabbit hole go?
Fast forward to the current landscape, and it appears the ongoing crisis has resulted in real estate prices falling so rapidly that they should be wearing a parachute. Consumers are scrambling to protect their wealth with about as much success as trying to catch water with a sieve, leading to a spectacular economic slowdown that leaves many wondering if anyone will ever break out of this endless cycle of fear and confusion.
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