China will roll out supportive measures for the property market in order to correct past, “mistaken” policies aimed at curbing the sector’s growth, according to the head of a top economic think tank in the country.
(Bloomberg) — China will roll out supportive measures for the property market in order to correct past, “mistaken” policies aimed at curbing the sector’s growth, according to the head of a top economic think tank in the country.
“It seems like the government is going to put forward more concrete measures,” said Yao Yang, dean of the National School of Development at Peking University, in an interview. “The government has to at least stop the decline of the housing market. There are encouraging signs of it.”
Top officials including President Xi Jinping pledged at a policy meeting last week to support housing demand in 2023. “That is a codeword for promoting the housing sector again,” Yao said.
The National School of Development that Yao oversees as dean is one of China’s most prominent economic think tanks. Yao was also one of a group of economists who consulted with Xi in 2020.
Last year, finance officials told banks to reduce their lending to the property sector, in what some policymakers and economists described as an effort to reduce the financial risk incurred by excessive leverage and housing speculation. That contributed to a 23% plunge in housing sales through the first 11 months of 2022.
“Using such harsh policies toward the sector was a total mistake,” said Yao, who singled out the “three red lines” rule intended to reduce property developers’ leverage.
“We had companies whose business was more or less healthy, but because of the three red lines, their business became a problem,” he added.
While some major real estate companies faced financial stress before the policies were launched, Yao said that was because funds raised for real estate development were diverted into non-core businesses, such as manufacturing and venture capital investment — an issue where he said regulators should have focused their efforts.
“Government policy in this case was not formed by rational consideration, but by emotion,” Yao said.
He added that property construction in China still has room to grow, as urbanization continues and urban residents demand larger housing.
While Yao expects fiscal and monetary policy will be directed toward boosting growth next year, he said he is worried that a resurgence of inflation could lead to premature tightening.
“Overall the Chinese government is quite conservative in terms of inflation,” he said, adding that he thinks the government will set an inflation target of 3% or 3.5%. Should inflation reach even 5% next year, he said that would still be tolerable.
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