I'm Robert Lawrence Kuhn and here's what I'm watching: China's economy in 2023. This Watcher, the fourth of a five-part series, focuses on China's strategy of strengthening the real estate industry with supportive property policies.
Following the 20th Party Congress, the government stepped up its efforts to address the property sector downturn. Banks were encouraged to loosen, but not reverse, the "three redlines"(tough tests for large real estate enterprises, monitoring their ratios of debt to cash, equity and assets). At the same time, secular structural factors, such as aging demographics and slower urbanization, augur permanent change, such that China's property sector may, over time, transition and contract.
The real estate sector was high on the agenda of the Central Economic Work Conference, held in December to set policies for the new year. Certainly, the guiding principle "housing is for living in, not for speculation" was affirmed, but it was balanced by calls to stabilize what has become an over-leveraged, anxiety-riven, risky property sector. Restoring confidence is prioritized, such as by ensuring housing delivery for those who pre-paid for their homes; and needed adjustments are highlighted, such as a long-term rental market.
Notably, the real-estate section of the Central Economic Work Conference communique was within the section dedicated to "effectively forestalling and defusing major economic and financial risks." This exemplifies leadership's concern that massive real estate debt could trigger financial contagion and it ratifies leadership's intent to reduce these systemic risks. Support policies include: promoting the steady development of the property market and meeting the reasonable financing demand of the sector; preventing and defusing risks of high-quality and industry-leading developers, in other words, making sure the top-tier developers have sufficient credit; and meeting people's basic housing needs and improving their overall housing conditions.
The key statement, to me, is this: "The country is seeking to promote a smooth transition of the real estate industry to new development models." "Smooth transition" — both words are telling: "transition" means recognizing that long-term change is required; "smooth" means policies that are gradual and evolutionary, not sudden and revolutionary. No one claims it will be easy or swift. Balancing sustainable growth of the real estate sector while reducing financial system risk and ameliorating housing prices for people will remain a perennial challenge.
I'm keeping watch. I'm Robert Lawrence Kuhn.
Script: Robert Lawrence Kuhn
Editors: Yang Yutong, Hao Xinxin
Designer: Qi Haiming
Producer: Wang Ying
Supervisors: Ge Jing, Adam Zhu
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