China rejects US$1 trillion housing rescue package proposed by IMF
The IMF wants China to deploy “one-off” fiscal resources to complete and deliver pre-sold properties or compensate homebuyers
CHINESE authorities have rejected a proposal made by the International Monetary Fund to use central government funds to complete unfinished housing, a key problem preventing a turnaround of an industry that’s been a major drag on the economy.
The IMF called on China to deploy “one-off” fiscal resources to complete and deliver pre-sold properties or compensate homebuyers, according to an annual review of the world’s second-largest economy published on Friday (Aug 2). It put the cost at the equivalent of 5.5 per cent of gross domestic product over four years.
That would amount to almost US$1 trillion based on last year’s GDP, according to Bloomberg calculations.
It’s a solution that China all but ruled out in an official response included in the report.
“We believe that we should continue to apply market-based and rule-of-law principles in completing and delivering these units,” said Zhang Zhengxin, the IMF’s executive director for China who was elected to the fund by the government in Beijing.
“It would be inappropriate for the central government to directly provide fiscal support, as it could lead to expectation of future government bail-out and therefore moral hazards,” Zhang said.
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The assessment hints at the scale of the challenge facing China as it endures a prolonged housing downturn but remains reluctant to unleash a large fiscal stimulus or extend a lifeline to the market.
On top of the funds needed to help absorb unfinished housing, the IMF reiterated a call for the government to accelerate the “resolution” or liquidation of insolvent developers, and allowing home prices to be more flexible.
“It will mitigate the risk of a larger and more protracted contraction in real estate investment and will help to rebuild confidence and boost consumption, thereby increasing growth and fiscal revenues in the medium term,” the fund said.
IMF staff conduct regular visits to member states that include meetings with local officials and then provide a report with accompanying analysis to the fund’s executive board for discussion. An Article IV consultation concludes with the presentation of the board’s views to the country’s authorities and its public release.
Across the country, tens of millions of apartments that are already sold to households have been delayed because struggling property developers aren’t able to finish them, according to estimates by economists including Nomura Holdings’ Lu Ting.
As a result, sentiment among homebuyers has suffered because people remain wary of acquiring properties only to find out they may never live there.
China’s housing travails have emerged as the largest obstacle to growth over the past two years. Beijing’s approach has seemingly offered just enough help to make sure the market adjustment doesn’t get out of control or trigger a financial crisis.
Authorities have been unwilling to lend more support to the housing sector in part because of top leaders’ determination to shift the economy’s growth driver away from property to technology and manufacturing.
The government has urged banks to lend to developers and stalled housing projects, but stopped short of providing direct funding.
In May, officials unveiled the biggest rescue package yet. It contains a 300 billion-yuan (S$55.4 billion) central bank fund that attempts to help local governments buy finished but unsold homes and turn them into subsidised housing.
That’s aimed to reduce the massive housing inventory, but fell far short of the 1 trillion to 5 trillion yuan that some analysts said was needed to deliver a more decisive fix. BLOOMBERG
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