Beijing is trying hard to ward off a slowdown, but data continues to disappoint

By Juliana Liu, CNN

Hong Kong (CNN) — This week, Chinese authorities across the board intensified efforts to boost growth, but those attempts may not be enough to fix the ailing economy.

On Friday, the country’s central bank pumped a massive amount of liquidity into the banking system as part of broader efforts to support the economy, which has been grappling with weak property market and consumer demand.

While Hong Kong stocks rose after the move, government data released on the same day showed that the world’s second economy is still struggling, as investment in fixed assets continued to disappoint.

Some areas did show improvement, though. According to the National Bureau of Statistics (NBS), output generated by China’s industrial sectors rose by 6.6% last month, compared to the same period in 2022. That’s higher than a forecast for 5.6% growth provided by a Reuters poll of economists.

Retail sales, a barometer of consumer spending, jumped by 10.1% in November, which was higher than the increase of 7.6% reported the month before.

However, the most recent figure was lower than a Reuters forecast of 12.5% expansion, which was calculated against a low base of comparison in 2022, when Covid-19 curbs discouraged spending.

Investment in fixed assets such as buildings and roads increased by 2.9% in the first 11 months of the year, compared to the same period in 2022. That was slightly lower than a forecast of 3.0% expansion.

Fixed asset investment was hobbled by real estate development, which fell 9.4% year-on-year in the first 11 months of this year, according to NBS data.

“The weakness in private investment is largely concentrated in real estate, where the problems clearly run much deeper than a simple lack of confidence,” Julian Evans-Pritchard of Capital Economics wrote in a Friday research note.

China’s real estate slump is at the center of many of its current economic problems. The industry, which has accounted for as much as 30% of the GDP, fell into crisis three years ago after the government cracked down on developers’ reckless borrowing.

Home sales have plunged, and many developers are struggling with a cash crunch. The property market slump has contributed to signs of tepid spending and even weak prices for most of this year, adding to concerns about deflation.

Loosening the rules

Beijing is taking steps to ward off a slowdown.

Earlier this week, China’s top leadership vowed to put greater focus on economic growth in 2024 at the closely-watched annual Central Economic Work Conference (CEWC), which typically sets the tone for economic policy for the year ahead.

According to Larry Hu, chief China economist at Macquarie Group, the People’s Bank of China (PBOC) injected a net 800 billion ($112 billion) worth of funding, the largest on record, into the banking system via the medium-term lending facility (MLF).

The MLF is a monetary policy tool introduced by the PBOC in 2014 to help commercial and policy banks maintain liquidity by allowing them to borrow from the central bank using securities as collateral. The PBOC said in a statement that Friday’s move was intended to “maintain reasonable and sufficient liquidity in the banking system.”

And to further support the ailing real estate industry, two of China’s biggest cities, Beijing and Shanghai, have further relaxed rules on property purchases by lowering the minimum deposit ratio for first and second homes.

On Thursday, the Beijing Municipal Commission of Housing and Urban-Renewal Development said it would lower the minimum down payment deposit ratio for first homes to 30%. Previously, that figure ranged from 35% to 40%, according to Reuters.

The minimum deposit for second homes would be lowered to 40% or 50%, depending on location. Previously, the amount was 60% or 80%.

The commercial capital of Shanghai announced that the down payment requirement for first-and second-home buyers would be lowered to 30% and 50%, respectively, CCTV reported. That compares to previous ratios ranging from 35% to 70%, according to state media.

Hu told CNN that the relaxation of rules should help to boost traction and sentiment in the property market.

“That said, it might not be enough to address the most important issue in China’s housing market. That is the credit risk for developers,” he said.

The ultimate solution, he added, may still lie with the central government, which can create a lender or buyer of last resort for troubled property developers, similar to the Troubled Asset Relief Program (TARP) created and run by the US Treasury during the global financial crisis.

TARP was passed in 2008, in the wake of Lehman Brothers’ bankruptcy, as the nation’s financial system was on the verge of collapse and economists feared another Great Depression.

— CNN’s Diksha Madhok and Wayne Chang contributed reporting.

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