Property Crisis Looms Large Over China’s Economy

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Chinese exports and consumer demand gained ground in the first two months of the year after a difficult 2023, according to new government data, but economists are warning that the world’s second-largest economy is still struggling to find its footing.
The debt-ridden housing market, in particular, is cause for concern, with property sales and new construction projects yet to stabilize, the economists wrote in separate pieces for Chinese think tank the Chief Economists Forum.
The ongoing property sector crunch and muted consumer confidence and global demand for exports have weighed on China’s economy since it dropped its strict “zero-Covid” policies at the start of last year.
Real Estate in the Red
“At present, the biggest uncertainty facing the economy is still concentrated in the real estate and export sectors,” Luo Zhiheng, vice president of the Guangdong Kai Securities Research Institute, and Yuekai Securities analyst Ma Jiajin wrote for the Chief Economists Forum.
They pointed to the data published this week by China’s national statistics bureau, which said net sales of floor space of new commercial buildings and sales of commercial buildings themselves decreased by 20.5 and 29.3 percent, respectively, in the first two months of the year.
Meanwhile, real estate investment was down 9 percent year on year.
“The problems of sluggish new home sales, tight funds of real estate companies, and lack of investment confidence have not been completely reversed,” they said, pointing out that total sales of the top 100 of these firms fell by 51.6 percent year over year.
China combines statistics for January and February into a single report to account for irregularities from its Lunar New Year holiday, which can fall within either month, depending on the year.
Luo and Ma warned that property investment and sales have yet to bottom out and that the market is “facing pains, affecting investment, consumption and local finance” in the ongoing adjustment period.
Wang Tao, chief economist at UBS Investment Bank, said sales in China’s trouble real estate sector have “remained deep in the red” and new and resumed construction since the Lunar New Year has been weaker than is typical, “all of which point to weakening economic growth momentum in the near term.”
In order to stabilize the sector and economic growth overall, she called for more support from policymakers, “especially in terms of increased credit support for (real estate) developers.” However, she predicted the property market will slip further before China’s risk-averse central government introduces such policies.
GDP Forecast
Earlier this month, Chinese leaders announced a GDP growth target of about 5 percent during the annual “Two Sessions” gathering of China’s rubber-stamp congress and top advisory body.
Wang said this figure was fairly “aggressive” and that a baseline figure of 4.6 percent is more likely, “given the more modest policy support so far and the lingering drag from the downside of the real estate market.”
Wang pointed out that economic performance in the second quarter will be a “bellwether” for recovery in the second half.
Many economists and those with knowledge of the topic, including China’s former No. 2 Li Keqiang, have cast doubt on the accuracy of China’s GDP figures.
Glimmers of Hope
The statistics bureau report was not all doom and gloom, however.
“Overall, January-February economic data was slightly stronger than expected,” Wang pointed out, “but downward pressure on growth persists.”
Wang pointed out that retail sales of consumer goods—an important barometer of domestic demand—rose by 5.5 percent in the first two months of 2024 year on year, with retail service sales up by 12.3 percent.
The outlook for the industrial sector brightened after a lackluster 2023.
The report cited a 7 percent rise in the total value of industrial firms with 20 million yuan ($2.8 million) worth of main business revenue.
Consumer goods manufacturing in particular jumped 4.7 percent from a year earlier and 4.4 percent since just December, while high-tech manufacturing got a 7.5 percent boost year on year.
Meanwhile, investment in manufacturing increased by 9.4 percent.
Trade was a notable bright spot on the statistics bureau report, which showed exports and imports were up 10.3 and 6.7 percent, respectively.
However, the exports outlook for the rest of the year is uncertain due to the overall global economic slowdown and geopolitical disputes, Ma and Luo cautioned.
These uncertainties include a “monetary policy pivot” from the U.S. Federal Reserve, U.S. government restrictions on Chinese products in areas like artificial intelligence and electric vehicles, and global hotspots that could disrupt shipping, such as the Red Sea.

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