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China can ensure financial stability, won’t repeat Japan’s ‘lost decade’ housing bubble

Illustration: Chen Xia/Global Times

Illustration: Chen Xia/Global Times

Downward pressure on China’s real estate market has mounted, but its spillover effects on the real economy and financial system have been greatly exaggerated by Western media outlets, which reflects the West’s lack of understanding of the country and its emotional resistance against China’s rise.

Nikkei Asia published an article on Tuesday, claiming China’s “property crisis” is taking a “particularly heavy toll” on small banks in low-growth provinces, as bad debts to developers erode their finances. 

Previously, Western analysts depicted Evergrande’s financial woes as a “wrecking ball” for China’s economy. Such efforts have fueled a new round of commentary about the “China collapse theory,” which has repeatedly been struck down by reality. 

China’s real estate sector is indeed facing some downward pressure and challenges, but it remains resilient. In February, prices of newly built commercial residential properties in first-tier cities fell 0.3 percent from a month earlier. The real estate market remains generally stable despite price fluctuations.

In some developed economies, when real estate prices fluctuate, the impact may spread to the entire economy and have a huge impact. Examples included Japan’s “lost decade” housing bubble in the 1990s and the US subprime mortgage crisis in 2008. However, the real estate market in China is different from the situations in Japan and the US at those times.

Tianfeng Securities analyst Song Xuetao wrote an op-ed article on Monday, headlined “China’s real estate sector won’t follow the old path of Japan.” We suggest Western analysts should read the article, in which Song analyzed the demand structure and the financialization of China’s real estate industry, as well as the loan-to-value ratio for Chinese residential mortgages. 

Song said the slide in China’s housing prices will be much milder than the decline in Japan, and, from the perspective of transmission risk, it will also be much milder than that in the US subprime mortgage crisis.

In the US in 2008, the collapse of real estate prices resulted in unprecedented losses of hedge funds, mortgage lenders and banks. However, China doesn’t have a complex property derivatives market similar to the US. Although the memory of the US crisis is still fresh for many Western analysts, the same scenario won’t play out in China, because the situation faced by the two countries is different.

First, although China’s real estate market is facing downward pressure, the decline in housing prices is limited. More importantly, because of the slow development of financial derivatives, it will have a very limited spillover effect on the financial system.

Second, China is actively taking measures to stabilize the real estate market. For instance, under the “white list” mechanism launched in January, local authorities are recommending real estate projects eligible for financial support to financial institutions. This mechanism helps ensure the completion of quality real estate projects developed by companies that are distressed by debt issues.

Third, China’s financial system is operating steadily and has strong resistance to risks. Multiple efforts have been made to improve the financial system, optimize financial services, and effectively forestall and defuse financial risks. Besides, Chinese households have high saving rates and low leverage levels, leaving sufficient space to cope with risks and challenges. 

Fourth, the central government has enough tools to stabilize the real estate market and secure financial stability. In recent decades, China has maintained a stable financial system during a period of rapid economic expansion and significant structural reform. This has proved China’s financial governance capability.

Pan Gongsheng, governor of the People’s Bank of China, the central bank, said in March that China’s property market is showing positive signs, with a solid foundation for long-term stable development and a limited impact on the financial system.

Despite the difficulties and challenges ahead, China is capable of ensuring financial stability and preventing systemic risk.

The author is a reporter with the Global Times. [email protected]

Beijing loosens housing policy, removing block on divorced homebuyers

People learn about properties at a real estate sales office in Beijing on June 24, 2023. Photo: VCG

People learn about properties at a real estate sales office in Beijing on June 24, 2023. Photo: VCG

Beijing has further loosened the city’s housing policy, with a former measure that restricts certain people from buying new homes in the city nullified on Wednesday, according to the latest information on the city’s official website for housing on Wednesday. This is among national loosing policies on the real estate sector to encourage house purchases while maintaining market order.

The move is being viewed as being of significance, and means that in the second quarter, more localities will further adjust their real estate policies, and objectively respond to the guidance of further optimizing policies targeting the real estate market released by the State Council, analysts said.

Buying a house in Beijing after divorce is no longer subject to a time limit as of Wednesday, news portal cls.cn also reported, citing an official from the Beijing Municipal Commission of Housing and Urban-Rural Development.

According to the website of Beijing’s housing commission, the document, which was originally issued in 2021 and imposed restrictions on divorced homebuyers, became invalid, as seen by the Global Times on Wednesday.

The original document specified that if a couple is divorced, and the number of properties owned by the original family before the divorce does not meet the provisions of the commercial housing purchase restriction policy of the city, then any party shall not buy commercial housing in the city within three years from the date of divorce.

The initiative behind the release of the document was to follow the principle that houses are for living in, not for speculation, as posted on the website of the Beijing Municipal Commission of Housing and Urban-Rural Development.

It was reported that some Beijing residents were engaging in “fake divorces” to obtain purchase qualifications and buy more houses before the document was released, according to media reports.

These policies explain the further adjustment and optimization of the housing policy in China’s first-tier cities, Yan Yuejin, research director at Shanghai-based E-house China R&D Institute, told the Global Times on Wednesday.

“The policy of house purchase restriction for divorced people was a policy of controlling obtaining house purchase qualification through ‘fake divorce’ in the past few years. Although there was controversy at that time, the policy was implemented,” said Yan.

Yan noted that the relaxation of property purchase rules is inevitable. And such policies, in essence, will provide a more relaxed purchase policy for reasonable housing consumer demand.

Since 2024, policies on both ends of supply and demand in the real estate industry have been constantly implemented. And some Chinese cities have responded positively to the authorities’ call for supportive measures for the property market and adjusted their purchase policies for commercial housing.

For example, Guangzhou in South China’s Guangdong Province eased measures on home purchases on January 27. The policy of restricting the purchase of homes over 120 square meters in the restricted areas was lifted.

Another example is South China’s Hainan Province. From February 7, the minimum down payment for first homes in Hainan was lowered from 25 percent to 20 percent, which is expected to further stimulate commercial housing sales in the province.

For the supply side, the urban real estate financing coordination mechanism has been set up in 312 cities of 31 provinces, Ni Hong, minister of housing and urban-rural development, revealed during this year’s two sessions held in early March.

More than 6,000 real estate projects have been put on the “white list,” said Ni. The “white list” mechanism refers to the city government recommending residential projects suitable for financing support to banks and coordinating financial institutions to meet project needs.

Global Times