The Chinese real estate sector, which is one of the most important components of the economic system of this country and has been in deep crisis for several years, currently shows no signs of recovery and does not signal any foreseeable positive prospects.
It is worth noting that Beijing is taking measures aimed at stimulating the dynamic of development in the mentioned area. However, government measures have not yet caused a positive result in terms of changing the state of affairs in the real estate sector. What is noteworthy in this case is the fact that other segments of China’s economic system are currently experiencing the dynamic of recovery.
It is possible that Beijing’s measures to stimulate the real estate sector have not demonstrated effectiveness because the relevant moves of the authorities are not sufficient in terms of the scope of impact and some of these decisions cannot be so due to their structural features. It is known that the Chinese government, as part of its efforts to boost economic growth, the dynamic of which significantly weakened during the coronavirus pandemic and did not recover on the expected scale in 2023, is trying to avoid measures that involve an increase in financial debt.
National Bureau of Statistics (NBS) the mentioned countries on Monday, March 18, published data according to which in the first two months of the current year, sales of new property reached 1.06 trillion yuan ($147 billion). This figure is 29.3% lower than the result for the same period in 2023.
Moreover, the volume of sales of new property in China in monetary terms in the first two months of the current year is evidence that the downturn of the corresponding figure has accelerated. In January-February 2023, this indicator fell by 0.1% compared to the result for the same period in 2022. The change in the dynamic of the downturn is obvious and indicates a significant deterioration in the negative tendency.
In January-February 2024, investment volumes in the Chinese real estate sector fell by 9% year-on-year. It is worth noting that in the first two months of 2023, the mentioned indicator showed a decrease of 5.7% compared to the result for the same period in 2022.
Experts from Capital Economics in an analytical note published on Monday said that in China, the correction in the sphere of property construction continues to be at an early stage. They expect that the volume of construction in this sector will be halved in the coming years. If this forecast becomes a reality, China’s economic growth will slow down in the medium term.
As above-mentioned, other segments of the specified country’s economic system, including industrial production, consumption, and infrastructure investment, are showing signs of gradual recovery. The reasons for this trend are factors such as the rapid growth of expenses in the sphere of tourism, improved demand for Chinese companies’ products abroad, and the development of infrastructure under the leadership of the authorities.
In the first two months of 2024, retail sales in the mentioned country increased by 5.5% year-on-year. The most significant improvement in the dynamic of the demand was recorded in sectors such as catering, telecommunications, sports, and entertainment services. Moreover, in the first two months of 2024, there was a sharp increase in consumer demand for cigarettes and tobacco.
Louise Loo, China economist at Oxford Economics, says that there is currently no definitive understanding of the prospects for continuing the mentioned improvement. According to the expert, in the first two months of 2024, the growth in consumer activity was partly due to the festivities. It is possible that the positive dynamic will not be able to continue due to the absence of the specified factor, which can be described as a kind of seasonal circumstance.
The volume of industrial output in China increased by 7% year-on-year in the first two months of 2024. This corresponds to the strong Caixin manufacturing Purchasing Managers Index released by S&P Global in March. This index, which focuses on export-oriented manufacturing companies in mainland China, rose to 50.9 in February from 50.8 in January. The mentioned indicator shows a positive dynamic for the fourth month in a row.
The growth of industrial output is largely the result of increased export demand. Customs data indicate that shipments of Chinese products to other countries increased by 7.1% year-on-year in the first two months of 2024. It is worth noting that in this case, the final result significantly exceeded market expectations.
The volume of investments in fixed assets such as factories, roads, and power grids increased by 4.2% year-on-year in the first two months of 2024. NBS data suggests that state-led investments drive this dynamic.
At the same time, full-fledged economic growth in China is impossible without improving the situation in the real estate sector and without additional measures to stimulate consumer demand, which is currently showing weakness. It is worth noting that both problems could be solved with policy support.
Louise Loo says that without incentives aimed at boosting consumer activity, it will be extremely difficult to maintain the high growth rates of Chinese citizens’ spending this year. The expert noted that in this case, some of Beijing’s new measures will be effective, including the initiative to replace old durable goods such as cars and home appliances with new ones.
Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, says that China’s economic prospects for the second quarter of 2024 continue to be largely uncertain. The expert noted that exports were able to partially compensate for weak domestic demand, but a steady recovery is possible with increased policy support.
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