China to target ‘unregulated’ expansion in property market

China said it will target disorderly expansion in the property sector, as policymakers seek to strike a balance between boosting economic growth and defusing financial risks. 

Efforts should be made to prevent “unregulated” expansion in the property market to promote its stable development, Premier Li Keqiang said at the annual session of the National People’s Congress – the Communist Party-controlled parliament.

The government also pledged to ensure “effective risk prevention and mitigation” in leading high-quality developers and help shore up their balance sheets, Li said.

The latest rhetoric underscored how Beijing plans to steer a soft landing from its worst property downturn while avoiding triggering a bigger crisis in the finance industry. A stable property market will be key for China’s recovery this year, given the sector’s weight in the national economy, estimated to be anywhere from about 15 per cent to 25 per cent of gross domestic product.

While the US$1.9 trillion new home market remains fragile, there are tentative signs the crisis may be easing after the government went all out to rescue the sector. A 16-month home-price decline halted in January and sales by the 100 biggest developers rose for the first time since June 2021 as well. 

“The latest remarks suggest authorities will maintain their tough regulation over the sector, and that no developers will be allowed to expand (in a disorderly way) and hamper stability in the financial markets,” said Shen Meng, a director at Beijing-based investment bank Chanson & Co. 

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Over the past few years, President Xi Jinping’s administration has used a similar expression of reining in disorderly expansion of capital in its crackdown on the private sector from fintech to online tutoring under the common prosperity campaign.

Meanwhile, China set a modest economic growth target of around 5 per cent for the year, a sign the nation’s top leaders are still concerned about the country’s recovery, given weak consumer confidence, declining exports and a housing market still under pressure. 

“The key to China’s property market problem remains on the demand side, where residents’ housing expectations have changed,” said Shen of Chanson.

The government will continue to support consumers to buy their first homes and help resolve the housing problems of new urban residents and the younger generation, Li said in the report on Sunday (Mar 5). 

Beijing also pledged to effectively prevent and defuse major economic and financial risks this year, according to the government report. 

Xi himself stressed the need to safeguard the financial system this year, especially preventing systemic risks that could stem from the embattled property sector, according to an article published in mid-February in the Communist Party’s Qiushi magazine. 

There remains many risks and “hidden dangers” in the real estate market, Li said, adding the operating risks of some small and medium-sized financial institutions have been exposed in the past few years. 

Authorities will also continue to deepen financial reforms, step up regulation and make sure all parties involved to assume their full responsibilities to guard against both regional and systemic financial risks, Li said. BLOOMBERG