The Chinese real estate market remains in the doldrums,
and the world is increasingly worried about China’s economy.
Recently, Chinese Communist Party (CCP) Premier Li Keqiang
said in an internal conversation that China’s economic
problem is the real estate economy.
In order to solve the problem, Li Keqiang issued four key
remedial measures to recover Mainland real estate.
So, are these prescriptions for treating
the housing market useful?
Will the crumbling housing market induce the collapse
of China’s economy?
Let’s see experts’ analysis.
On July 21, Mainland media outlet Win Business Network
reported that Li Keqiang published the article “Premier Li
Keqiang Issued Four Prescriptions Ror Remedying China’s
Real Estate Issues,” after an emergency consultative meeting.
In the article, Li admitted that, “China’s economy is
basically the real estate economy,
and China’s economic problems are basically
real estate economic problems."
Li Keqiang issued four prescriptions to deal with real estate
problems – strictly controlling loans to developers
and cutting off funding sources for the development
of real estate;
imposing value-added tax on developers;
forcing the recording of properties bought and owned
by officials; as well as launching property tax.
University of South Carolina Aiken School of Business
Professor Frank Xie in the US:
“Li Keqiang gave four prescriptions to deal
with four real estate issues.
Recently the government also tightened lending on property
developers, but then standards were slowly relaxed.
Currently the CCP Central government required local
governments to increase expenditure by investing
in infrastructure and real estate development.
So I do not see any prospects in the four prescriptions."
Professor Frank Xie said the CCP’s numerous measures
contradict each other.
On the one hand, they want to constrain investment;
on the other hand, in order to maintain economic
development, they have to continue to boost investment.
Statistics show that China’s real estate industry accounts
for 6.6 percent and 15 percent of the total GDP
and investment, respectively.
There are 60 industries associated
with the real estate industry.
The total scale of the real estate loans (including loans
to developers, land loans and personal housing loans)
offered by Chinese financial institutions has reached
tens of trillions.
Zhu Baoliang is the Director of Economic Forecasting
Department of China State Information Center.
He publicly stated that 60 percent of China’s manufacturing
activities were related to the real estate industry.
60 percent of all financing activities including bank loans
as well as local government financing platforms and trusts,
are associated with the real estate industry.
If a big problem is exposed in the real estate field,
then the economy will be considerably impacted.
This year, the Mainland property market has shown signs
In late February, real estate “price cuts" triggered
in Hangzhou are sweeping across China.
The property development project, “West Lake Chamber"
in Xiangcheng District of Wuhan City even hit a 60 percent
discount whereas Beijing launched “zero down payment"
On July 18, the CCP National Bureau of Statistics
announced the housing price index of 70 Chinese cities.
The index shows that not only do property prices
in the second and third tier cities continue to fall,
but also values in the first-tier cities fell
for two consecutive months.
Under the conditions of the continued property market
decline, many local governments began to abandon
the purchase limit and have loosened property price limit
and credit limit policies.
However, compared to last year, the total number of China’s
new buildings continue to rise, and the new building
increases with rates of 5.35 percent and 4.05 percent
in May and June, respectively.
Real estate prices continue to fall, but why do investments
continue to flow into the real estate industry?
Mainland finance analyst Ren Zhongdao:
“Without constructing new buildings,
the local governments do not sell land,
and then they have no money to pay debts.
If the real estate developers do not buy land,
then they have no land to use as loan collateral
or issue trusts and other financial products.
Therefore, in order to return the money,
they still have to construct buildings.
Now this has become a vicious cycle."
Ren Zhongdao said that as the real estate field accounts
for a high proportion of the Chinese GDP, once problems
break out, not only will the financial system be impacted,
but also all construction-related industries will be hit as well.
The United States-based ‘Muddy Waters’ company founder
Carson Block is famous for revealing accounting fraud
of publicly listed Chinese companies.
He believes that China is facing “huge credit and asset
bubbles," and a large number of loans flowing into the field
of non-productive assets will lead to a high credit risk.
He believes that once the real estate bubble bursts,
the Chinese GDP will shrink up to 25 percent
and GDP growth will fall by 2 percent.
Mainland economist Ma Guangyuan
commented in his personal blog post that
now the real estate bubble is significantly large.
It is unable to be pierced.
More importantly, once punctured, it is tantamount
to the suicide of the Chinese economy.
He believes that the Chinese real estate investment
accounts for more than 15 percent of GDP.
The Chinese economy has been completely dominated
by the real estate industry.
Once big problems occur in the real estate field,
the Chinese economy will inevitably collapse.
Interview & Edit/YiRu Post-Production/ShuChan