China Signals Support for Real Estate Sector and Local Governments

Date Issued: 1st November, 2023

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Author: Emmanuel Baiden - Senior Research Analyst

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Policy Shifts to Bolster Real Estate and Manage Local Government Debt

In a recent high-level financial meeting, the Chinese government unveiled significant policy shifts aimed at supporting the nation's ailing real estate sector and addressing issues related to local government debt. This comes as a response to a state media report, reflecting the potential to reshape the country's economic landscape. Such gatherings often set the tone for long-term policy directions, influencing subsequent detailed actions.

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Equal Treatment for Property Developers

One of the notable developments is the government's signal to treat both private and state-owned property developers equally and ensure their funding demands are met. This is a departure from Beijing's previous approach, where it cracked down on developers' excessive reliance on debt for growth starting in 2020. The real estate industry, a significant contributor to China's economy, has recently experienced a downturn marked by developer defaults and declining home sales.

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No Bailout for the Real Estate Sector

It's worth noting that the government is not providing an outright bailout for the real estate sector, which is widely anticipated to shrink from its one quarter share of China's economy. Instead, authorities have recently eased restrictions on home purchases and extended support to developers in completing apartment construction projects, particularly those sold before completion.

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Market Reaction

Market indicators, such as the Hang Seng Property Development and Management Index, reflected a mild uptick in Wednesday morning trading, suggesting some optimism in response to the government's policy signals.

The real estate market is intricately linked to local government finances, which have faced challenges due to the costs associated with COVID-19 relief measures.

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Increased Oversight and Prudent Measures

Moreover, this financial meeting underscores the Chinese Communist Party's increasing oversight of the finance sector. Compared to previous years, the conference, delayed by more than a year, was designated as the "central" financial work conference rather than "national." The focus this time is on maintaining regulatory measures to prevent the emergence of new financial risks, as opposed to launching a significant de-risking campaign as seen in 2017.

While past readouts emphasized the importance of "regulation" and "risk," these terms were mentioned less frequently in this year's report.

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Leadership's Role and The Future Impact

Chinese President Xi Jinping delivered a high-level speech at the conference outlining the country's financial development, and Premier Li Qiang provided detailed arrangements for financial work. Additionally, Vice Premier He Lifeng, now the director of the office of the Central Commission for Financial and Economic Affairs, gave the closing speech at the meeting.

The latest developments suggest China is taking a more balanced approach to support the real estate sector and local government finances while maintaining prudent regulatory measures. This shift is expected to have a significant impact on the country's economic landscape in the coming years.

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[Disclaimer: This newsletter provides financial insights for informational purposes only. It does not constitute financial advice or recommendations for investment decisions.]

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