China’s property sector needs stronger stimulus: Citigroup economist
News Summary
Citigroup’s chief economist for Greater China, Yu Xiangrong, stated that stronger stimulus measures are necessary to halt the decline in China’s embattled property sector and guide the national economy towards stable growth. The proposed incentive package includes interest rate reductions, tax cuts, further relaxation of home purchase restrictions, and the buy-back of idle land. Yu predicted that if Beijing targets a 5% growth for 2025, expanding domestic demand is crucial, with property market stabilization being key to encouraging consumer spending. While China’s economy expanded 5.2% in the first three quarters of 2024, likely meeting the full-year target of 5%, Citi forecasts GDP growth to slow to 4.7% in 2025. Citi joins international banks like UBS and Goldman Sachs in advocating for more aggressive policies to support mainland China’s property market, which has been in a downward spiral since early 2022. The property sector and related industries account for about a quarter of the country’s economic output.
Background
China's property sector has been in a continuous downward spiral since early 2022, exerting significant pressure on the national economy. The sector, along with related industries such as home appliances and construction materials, accounts for approximately a quarter of China's total economic output, making its health crucial for overall economic growth. The Chinese government has been attempting to stabilize the sector, but measures implemented so far have been widely perceived by many analysts as insufficient. Currently, the Chinese economy grew by 5.2% in the first three quarters of 2024, on track to meet its 5% annual growth target, but there is widespread caution regarding the economic outlook for 2025, with growth expected to slow.
In-Depth AI Insights
Why is Beijing seemingly hesitant to implement more aggressive property stimulus, and what deeper strategic considerations might be at play? - Despite calls from international banks for more aggressive measures, Beijing may be prioritizing long-term structural reforms over short-term stimulus. Excessive stimulus risks exacerbating moral hazard, potentially re-burdening local governments and developers with high-risk debt, contrary to the long-term policy of "housing is for living, not speculation." - Furthermore, ongoing deleveraging and industrial transformation are broader strategic goals, and large-scale short-term stimulus could disrupt these processes, especially amidst increasing global economic uncertainty. How will a prolonged property slump reshape China's economic structure, and what ripple effects will it have on global investors? - The property sector's role as a wealth pillar will gradually diminish, prompting Chinese households to shift more savings towards other investments or consumption, accelerating the economy's transition from investment-driven to consumption-driven. However, this transition will be protracted and painful, accompanied by balance sheet repair challenges. - For global investors, China's demand for commodities (especially industrial metals) will structurally decline, impacting resource-dependent economies. Simultaneously, China's domestic consumer market might face pressure due to impaired wealth effects, but successful structural transformation could eventually lead to more sustainable growth opportunities. To what extent will the calls from international banks like Citi influence Beijing's policy decisions, and what concerns does this reflect from foreign capital about China's economic outlook? - The recommendations from international banks serve as external observations and analyses for Beijing's consideration, but decisions will still be based on internal assessments and politico-economic factors. These calls reflect deep concerns among foreign capital regarding China's slowing growth, potential spillover of property risks, and its implications for global supply chains and financial stability. - Under President Donald J. Trump's administration, continued Sino-US trade and economic tensions likely amplify foreign investors' risk assessment of the Chinese market, making them more eager for decisive government action to stabilize the economy and maintain foreign investor confidence.