The View | A stimulus-fuelled China property rebound is just not on the cards, despite market hopes

Continuing economic pessimism and recent policy measures to shore up the sector are feeding hopes that a massive boost is yet to come

Investors are underestimating China’s determination to cut its reliance on property asset inflation for growth, and turn instead to technology and high-end manufacturing

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Home buyers leave their residential compound through a hole in a wall, at the unfinished Gaotie Wellness City complex in Tongchuan, Shaanxi province, on September 12. China is likely to continue to roll out measures to support the property sector, but there’s a difference between stimulating and stabilising. Photo: Reuters

Published: 3:30pm, 25 Sep 2023

Upgrades to forecasts of China’s economic growth are a rarity these days. This makes the decision by JPMorgan earlier this month to revise up its estimate for growth this year from 4.8 per cent to 5 per cent all the more significant.

Sentiment towards China remains bleak. Foreign investors sold a record US$12 billion of onshore stocks last month. By the end of June, foreign holdings of Chinese stocks and bonds had fallen 17 per cent since reaching a peak in December 2021, data from Bloomberg shows.

Yet, over the past month, stronger-than-expected economic data has lifted hopes that the economy has finally hit a bottom. The downturn in the manufacturing sector eased in August, with a gauge of activity edging closer to the 50 mark, signifying an end to contraction. Credit growth was also stronger than anticipated while deflationary pressures abated somewhat.

More importantly from a market perspective, the pace and scope of policy measures to counter the downturn in the all-important property sector have increased markedly. On August 31, Beijing announced it would allow China’s largest cities to reduce minimum down payments for homebuyers and encourage banks to lower rates on existing mortgages.

The measures came on the heels of a decision to allow local governments to scrap a requirement disqualifying people who previously had a mortgage – even if fully repaid – from being treated as first-time buyers in major cities.

Some investment banks believe there has been a major policy shift. Morgan Stanley said that “reflationary policy is ramping up at a pace unseen in recent years”. Bank of America said that “the period of more coordinated and concentrated easing in policymaking has just begun”. Even Nomura – which is notoriously bearish on China – said that “the measures mark a significant step towards stimulating the property sector”.

.css-1m2rp1p{color:#34b8b5;}The View | A stimulus-fuelled China property rebound is just not on the cards, despite market hopes

The View | A stimulus-fuelled China property rebound is just not on the cards, despite market hopes