China’s top leaders are calling for an end to the property slump

BEIJING — China is aiming to stop a property slump, top leaders said Thursday in a reading a high-level meeting published by state media.

Authorities “must work to halt the decline of the real estate market and stimulate a steady recovery,” the Chinese readout said, as translated by CNBC. He also asked to “respond to the concerns of the masses”.

Chinese President Xi Jinping presided over Thursday’s meeting of the Politburo, the second-highest power circle in the ruling Chinese Communist Party, state media reported.

The reading said the leaders called for stronger fiscal and monetary policy support and touched on a range of issues from employment to an aging population. He did not specify the timing or scale of any measures.

“I view the messages from this meeting as a positive step,” Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said in an email to CNBC. “It takes time to formulate a comprehensive fiscal package to address the economic challenges, [and] the meeting took a step in that direction.”

Shares in mainland China and Hong Kong extended gains after the news to close sharply higher on Thursday. A Chinese real estate stock index in Hong Kong it increased by almost 12%.

Real estate once accounted for more than a quarter of China’s economy. The sector has slumped since Beijing’s 2020 crackdown on developers’ high levels of debt. But the fall has also cut into local government revenues and household wealth.

China’s broader economic growth has slowed, raising concerns about whether it can meet its full-year GDP target of around 5% without additional stimulus. Days after the US rate cut, the People’s Bank of China on Tuesday announced a series of planned rate cuts and real estate support. Stocks rose, but analysts warned that the economy still needed fiscal support.

Official data shows that the fall in real estate has moderated slightly in recent months. The value of new homes sold fell 23.6% in the year to August, slightly better than the 24.3% year-on-year fall in July.

Median home prices fell 6.8% in August from the previous month on a seasonally adjusted basis, according to Goldman Sachs. That was a modest improvement from July’s 7.6% decline.

“Bottom-out stabilization in the housing market will be a prerequisite for households to take action and break the wait-and-see cycle,” Yue Su, China’s chief economist, said in a note at the Economist Intelligence Unit. “This suggests that the policy priority is not to boost house prices to create a wealth effect, but to encourage households to buy. This property policy aims to reduce its impact on the economy.”

Thursday’s meeting called for limiting housing supply growth, increasing loans for whitelisted projects and reducing interest rates on existing mortgages. The People’s Bank of China said on Tuesday that the upcoming cuts will reduce the burden of mortgage payments by 150 billion yuan ($21.37 billion) a year.

While Thursday’s meeting did not provide many details, it is important for a country where policy direction is increasingly set at the top.

The high-level meeting reflects the setting of a “comprehensive policy” as previously there was not a single meeting to summarize the measures, Bank of China chief researcher Zong Liang said in Mandarin, translated by CNBC.

He noted how the meeting follows the market’s positive response to policy announcements earlier in the week. Zong expects Beijing to increase support, marking a shift from a focus on stability to action.

The meeting reading said China would “work hard to complete” the country’s economic targets for the full year.

That’s less aggressive than the Politburo meeting in July, when the reading said China would work to meet those targets “at all costs,” according to Bruce Pang, chief economist and head of Greater China research at JLL .

This shows that policymakers are seeking a middle ground between short-term growth and long-term efforts to address structural issues, he said.

Goldman Sachs and other firms have cut their growth forecasts in recent weeks.

The change in tone on economic targets signals that “the government can tolerate growth below 5%,” said EIU’s Su. “We estimate that real economic growth will be around 4.7% in 2024, before slowing to 4.5% (a modest upward revision from our previous forecast).”

“The Politburo meetings on economic development are usually held in April, July and October,” he said.

“The fact that this meeting was held earlier, along with the emphasis on stabilizing growth, reflects policymakers’ concerns about the current trend of economic growth.”

Analysts’ initial reactions to Thursday’s session reading were mixed.

HSBC said “the tide has changed; be prepared for more proactive initiatives.” Capital Economics, on the other hand, said Beijing’s hint at stimulating the economy did not make clear whether it would include large-scale fiscal support.

S&P Global Ratings analysts said in a report earlier this year Fiscal stimulus is losing its effectiveness in China and is more of a strategy to buy time for long-term goals.