CHINA’S property industry contracted again in the second quarter after a short-lived expansion in the previous three months, adding to the economy’s challenges.

The real estate sector declined 1.2 per cent in the April-June period from a year ago, according to a breakdown of the gross domestic product data released by the National Bureau of Statistics (NBS) on Tuesday (Jul 18). The drop reverses the first expansion in the sector since 2021 recorded in the first quarter.

The slump in the property market has weighed on China’s economic recovery, putting Beijing’s official growth target of around 5 per cent at risk. GDP figures released on Monday showed growth lost momentum in the second quarter while deflation risks are mounting.

Consumption sectors, such as hotels and catering, transportation, and retail, expanded at a faster pace in the second quarter than the previous three months, the NBS said Tuesday, partly due to a low base of comparison with last year.

The contraction in real estate comes after recent data showed property investment declined at a steeper pace in the first half of the year, home sales plunged in June, while housing prices dropped in the month for the first time this year.

Several Wall Street banks, including JPMorgan Chase & Co, Morgan Stanley and Citigroup, have downgraded their forecasts for growth after the disappointing GDP data.

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An official from China’s top economic planning agency said on Tuesday it remains confident the full-year growth target can be achieved as existing and new policies take effect to support consumption.

Jin Xiandong, the spokesperson for the National Development and Reform Commission, said a slew of measures will be introduced to boost purchases of cars, electronic products and consumption in rural areas. Separately, a dozen government departments including the Ministry of Commerce jointly released a policy document on Tuesday to facilitate the consumption of home-related products, including home appliances and furniture.

Calls for more stimulus are rising but officials appear reluctant to unleash aggressive policies given concerns over high debt levels in the economy. Economists expect the People’s Bank of China to take moderate steps to ease monetary policy for the rest of this year. It’s likely to cut the amount of cash banks have to keep in reserve in the third quarter, China Securities Journal reported Tuesday.

More policy clues may come at a meeting of the Communist Party’s Politburo later this month, where officials are likely to discuss monetary easing, issues around local government debt, and potentially the housing sector, according to Dan Wang, chief economist at Hang Seng Bank China.

Market expectations on GDP growth are now “more aligned with the official target and that is desirable from the policymaker’s perspective”, Wang said in an interview on Bloomberg TV. “As long as they are providing enough jobs, there is no point in issuing a bigger stimulus package.”

Credit growth, which has been closely related to the housing market, is likely to “stay tame” in the future because the government wants to avoid a drastic rebound or speculative bubbles in the property market, she said. BLOOMBERG