China February new house prices slide
|Despite Beijing's target of achieving 'around 5%' GDP growth, China watchers anticipate significant challenges in meeting this goal. While the global trade and tech cycle shows signs of improvement, evidenced by a stronger-than-expected 7.1% year-on-year rise in merchandise exports during January-February, domestic-oriented activities continue to struggle.
Indeed, used home prices continued to slide, albeit slower than last month's decline. However, reversing the struggling property sector is crucial for stimulating broader economic growth and restoring investor confidence that the market has bottomed out.
A vicious circle emerges when falling prices lead consumers to delay purchases, anticipating further price declines. This behaviour reinforces the downward pressure on prices, creating a self-perpetuating cycle of deflationary pressures.
Frankly, I don't think this is much of a surprise after the China Real Estate Information Corp. reported a significant 60% year-on-year decline in the value of new home sales from the country's 100 largest property developers in February, compared to a 34% decline in January.
The clamour for increased fiscal and monetary stimulus has once again intensified recently. While no one is advocating for the Bazooka Type stimulus measures seen during Asia's Great Fincancial Crisis, the current fiscal measures announced alongside the growth target reveal a relatively modest approach. The official budget deficit target of around 3.0% of GDP remains unchanged from last year, despite a slight increase in the special government bond issuance to CNY4.0 trillion from CNY3.9 trillion. However, authorities will likely need to implement more substantial measures in the coming months.
Beyond increased government spending, it is evident that the Chinese economy requires structural reforms to encourage citizens to spend rather than save. This necessitates implementing long-term solutions, including establishing a robust social safety net, a higher labour share of income, and improved retirement benefits. However, none of these changes are imminent in the near term, highlighting the challenges associated with implementing such reforms.
Former Premier Wen Jiabao's famous statement from 2007 about China's economy being "unstable, unbalanced, uncoordinated, and unsustainable" still holds significant relevance today. Without a substantial increase in stimulus measures or meaningful efforts toward structural reform, the economy could face another tumultuous period similar to last year. The enduring validity of Wen's words underscores the persistent challenges facing China's economic development and the urgent need for proactive measures to address them.
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