The biggest economic issue for China is its property market

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by Shaun Richards

It is past time for us to take a look at what is happening in the economy of China and we can start with the official announcement over the weekend.

China will aim for an economic expansion of “around 5 per cent” for 2023, its lowest target for more than three decades, as President Xi Jinping seeks to restore pre-pandemic levels of growth and prepares to further centralise power in his own hands. ( Financial Times)

Actually according to China Perspective there were a few other targets as well/

China also set a goal of 3% for the consumer price index, and a 5.5% unemployment rate for people in cities — with the creation of around 12 million new urban jobs.

But it is the growth target which provides the headlines and according to Hu Xijin it is easy.

China’s 5% growth target clearly leaves some leeway. It’s possible that it can grow by more than 6%. Because as long as tourism this year can recover to 85% of that in 2019, it will contribute 3 percentage points to GDP. And last year’s GDP growth was 3%.

What is perhaps easier is to see this as a propaganda tool, although even he has to admit growth was only 3% last year as opposed to the target of 5.5\%.

The generic issue here is this pointed out by the Financial Times.

China’s official economic growth targets have been trending lower over the past decade as policymakers have sought to rein in the country’s growing debt burden and stimulate more domestic consumption.

Although on the other side of the coin the Covid lockdowns will help the growth figures this year as they reduced 2022 GDP growth and a return to normal will mean recorded growth.

People’s Bank of China

A bit over a week ago we heard from the central bank or PBOC

BEIJING, Feb 24 (Reuters) – China’s economy is expected to generally rebound in 2023 and monetary policy will be precise and forceful, the central bank said in its quarterly policy implementation report released on Friday.

The People’s Bank of China (PBOC) said it will focus on supporting domestic demand expansion and stabilising economic growth and prices while avoiding “flood-like” stimulus, according to the report.

They have picked up the western trend for central banks to use the word “forceful” showing again that central bankers are pack animals at least in language terms. Although the PBOC is heading in the opposite direction to western central banks as the numbers below show.

Reasonable growth of money and credit. In 2022, new RMB loans will be 21.31 trillion yuan, an increase of 1.36 trillion yuan year-on-year; at the end of the year, the stock of RMB loans, broad money (M2), and social financing scale will increase by 11.1%, 11.8% and 9.6% respectively year-on-year. ( PBOC)

As you can see China had broad money growth of just under 12% in 2022 which is very different to the policies of the western central banks who were applying the brakes. Indeed the annual growth rate in December was 16.8%. There was another clear difference with the West here.

The weighted average interest rate of corporate loans for the year was 4.17%, a year-on-year decrease of 0.34 percentage points. percentage point.

Of course China has recorded much lower inflation rates than the Western capitalist imperialists.

In January 2023, the national Consumer Price Index (CPI) increased by 2.1 percent year-on-year ( China Statistics)

Such numbers would be party time at most western central banks although the monthly numbers were more troubling.especially for food.

In January, the national consumer price increased by 0.8 percent month-on-month. Among them, the urban increased by 0.8 percent and the rural increased by 0.5 percent; food prices increased by 2.8 percent,

In the detail there was something familiar for those who follow the Chinese economy.

of which the price of pork increased by 11.8 percent, affecting the CPI increased by about 0.16 percentage point;

Plus something that is affecting more and more of the world.

egg prices increased by 8.4 percent, affecting CPI increased by about 0.06 percentage point

But for now China is recording much lower levels of inflation. The cheap oil imports from Russia will have helped here although it does also feel a little too good to be true.

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So much of the Chinese economy and growth has revolved around the property sector in recent times and thus the falls in house prices we have been noting posed more than a few questions.

New home prices in January were up 0.1% month-on-month, versus a 0.2% slide in December, according to Reuters calculations based on National Bureau of Statistics (NBS) data released on Thursday.

I am sure that 0.1% is well within the margin of error here but Reuters get a little excited.

The market expects Beijing will roll out more easing measures to further revive the sector, especially during or after a highly-anticipated annual parliament meeting starting in early March.

In the past that would have already got house prices moving but as you can see below now there is an element of wait and see.

“We believe that with the strong policy support from both demand and financing side, the sales will start to rebound significantly from late Q2. Any early boom will be positive for the growth outlook,” said Zhou Hao, chief economist at Guotai Junan International.

So we see that the bubble phase is now over and it is impacting the state too.

Local authorities in China have been grappling with reduced revenue from land sales due to regulatory tightening in the property sector, ……..“We expect our general budget revenue to decline because Kunshan is already quite developed, with the land market performing poorly. And we don’t have a lot of land for sale anyway – so this will be a big problem for the coming years.” ( South China Morning Post)

If we return to the weekend;s congress the official statement is the opposite of what policy was for many years.

BEIJING, March 5 (Reuters) – Warning that risks remain in the property market, China’s government said in a report released at parliament’s annual opening on Sunday that it would promote the sector’s stable development and prevent disorderly expansion by developers.

The late stages of a property boom ( Japan is perhaps the clearest case) invariably have something along these lines.


The property market in China is so depressed that some banks are resorting to drastic measures, including allowing people to pay off mortgages until they are 95 years old.

Some banks in the cities of Nanning, Hangzhou, Ningbo and Beijing have extended the upper age limit on mortgages to between 80 and 95, according to a number of state media reports. That means people aged 70 can now take out loans with maturities of between 10 and 25 years.


If we start with the growth target of 5% then as we stand it looks achievable. Partly that is because last year was artificially reduced by Covid restrictions and party because of reports like this.

This demand improvement in demand was in turn driven by a wave of new business received from the Chinese mainland, which rose at a rate not seen since the post global financial crisis growth boom of early-2010.

That was from the Purchasing Managers Index for Hong Kong on Friday which backed up this for China itself.

PMI survey data indicated that the recovery across China’s service sector picked up speed in February, with firms signalling the steepest increase in activity since last August

But looking further ahead the problem remains the property sector and how China will wean itself off a consequence of the bubble.

The “hidden debt” issued by local government financial vehicles, entities created to circumvent borrowingrestrictionsand used to channel funding for infrastructure spending,might have totaled 65 trillion yuan ($9.6 trillion) by the middle of 2022, according to a recent estimate by analysts at Mars Macro, an economic research firm based in Hunan. ( CNN)

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