Page 220 - 2019 White Paper on the Business Environment in China
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9 White Paper on the Business Environment in China
or even tighten the market to stabilize prices (Reuters, at the end of 2017 from 17.9 percent at the end of 2008,
China’s Property). according to data compiled by the National Institution
for Finance and Development, a state-backed think-tank
Keeping the country’s housing market bubble under in Beijing. It showed that Chinese households in general
control remains at the top of the government’s agenda. are accumulating debts at a pace that have never seen
According to one analysis survey, a 10 percent drop in before. For rural residents and migrant workers who
Chinese property prices could cause a 1 percent decline purchased property with debt, their families may face
in gross domestic product growth in the short term. A 15 financial difficulties if they need cash for any unexpected
to 20 percent property price drop could lead to recession, events as they try to pay off their debts, Ning Lei, a
defined as two consecutive quarters of negative researcher with the Institute for Advanced Research at
economic growth. Given the powerful intervention the Shanghai University of Finance and Economics, said.
government can exercise on the land, housing and credit “China’s household debt to household disposable
markets, a total crash seems almost impossible. Le Xia, income ratio will continue to rise,” said Ning, who has
chief Asia economist at BBVA Research, said in its study been studying household debt. “It increases the danger
that China’s property market remains closely connected of an ugly correction if the Chinese job market softens
to, and highly exposed to, its key economic sectors: local or income stagnates.” China’s excessive monetary easing,
government revenue, banks, enterprises and households. associated with a steady property price inflation, in the
Le and his team estimate that a 30 percent plunge in past decade has generated a perception that if you don’t
property prices would cut local government revenue by buy a flat today, you will never be able to afford it, and
780 billion yuan (US$122.04 billion), lift non-performing that perception is spreading from big modern cities into
loans to 2.39 percent of the total from the current 1.74 the poorer corners of the country (He).
percent within a year, wipe 802.5 billion yuan off the value
of stocks, and slash aggregate household wealth by 46.9 Almost everywhere you look, outside of China’s largest
trillion yuan. The widespread market cooling measures cities, prices are pushing higher. Given the recent trends,
have triggered a slowdown in property sales, and prices seemingly defying the will of regulators who have been
have declined from that peak in 2016, fitting in with the attempting to cool house prices for several years, it begs
government’s objective of stabilizing the market, and the question whether even tougher restrictions could be
preventing any sharp shock. While a crash is not imminent introduced in the period ahead before the next housing
as a result of the persistent government intervention, its bubble begins to truly inflate. Elliot Clarke, Senior
heavy-handed approach to controlling the market has a Economist at Westpac thinks they won’t give the scale of
serious side effect, however, according to Professor Tao recent gains and the deteriorating external environment
Ran at Renmin University of China’s school of economics facing China’s economy at present. “While the breadth
in Beijing: “All the measures that I can see are disrupting of gains is striking, their quantum remains relatively
the market… They distort the market dynamics, which subdued compared to heights reached in 2015 and 2016,”
includes the possibility of a sharp correction... That really Clarke says. “For new housing, prices in tier 2 are currently
doesn’t help China to sustain its economic growth in the up 6.6 percent over the year, while in tier 3 they have
long term” (Lee). risen 6.0 percent.” So, the gains are far smaller than those
seen in the past, but Clarke says that despite the risks of
Seemingly off the radar of the national property encouraging ever-greater levels of leverage, China needs
statistics, however, a quiet property boom is taking place its housing market to remain strong given threats facing
in some of the more remote corners of China. Soaring other parts of the economy. “Authorities are less likely to
levels of household debt in these rural families is largely react to accelerating price growth in this instance given it
invisible in the statistics because the National Bureau of is being seen in tier 2 and 3, where construction activity
Statistics property price figures ignore vast swathes of and wealth gains are desired, and because — in a macro
the country and only collects data from 70 major cities. sense — strength in residential construction is currently
Meanwhile, while China has a rough data about debts necessary to offset weakness in other key sectors, namely
from calculating how much families have borrowed from utilities and transport,”he says. In a time of trade wars and
banks, there is no breakdown to distinguish between deleveraging in China’s industrial sectors, China will likely
rural and urban households. The ratio between debt to turn to its housing market as it has done so many times
incurred by families and gross domestic product – known in the past (Scutt).
as the household leverage ratio – surged to 49 percent
220
or even tighten the market to stabilize prices (Reuters, at the end of 2017 from 17.9 percent at the end of 2008,
China’s Property). according to data compiled by the National Institution
for Finance and Development, a state-backed think-tank
Keeping the country’s housing market bubble under in Beijing. It showed that Chinese households in general
control remains at the top of the government’s agenda. are accumulating debts at a pace that have never seen
According to one analysis survey, a 10 percent drop in before. For rural residents and migrant workers who
Chinese property prices could cause a 1 percent decline purchased property with debt, their families may face
in gross domestic product growth in the short term. A 15 financial difficulties if they need cash for any unexpected
to 20 percent property price drop could lead to recession, events as they try to pay off their debts, Ning Lei, a
defined as two consecutive quarters of negative researcher with the Institute for Advanced Research at
economic growth. Given the powerful intervention the Shanghai University of Finance and Economics, said.
government can exercise on the land, housing and credit “China’s household debt to household disposable
markets, a total crash seems almost impossible. Le Xia, income ratio will continue to rise,” said Ning, who has
chief Asia economist at BBVA Research, said in its study been studying household debt. “It increases the danger
that China’s property market remains closely connected of an ugly correction if the Chinese job market softens
to, and highly exposed to, its key economic sectors: local or income stagnates.” China’s excessive monetary easing,
government revenue, banks, enterprises and households. associated with a steady property price inflation, in the
Le and his team estimate that a 30 percent plunge in past decade has generated a perception that if you don’t
property prices would cut local government revenue by buy a flat today, you will never be able to afford it, and
780 billion yuan (US$122.04 billion), lift non-performing that perception is spreading from big modern cities into
loans to 2.39 percent of the total from the current 1.74 the poorer corners of the country (He).
percent within a year, wipe 802.5 billion yuan off the value
of stocks, and slash aggregate household wealth by 46.9 Almost everywhere you look, outside of China’s largest
trillion yuan. The widespread market cooling measures cities, prices are pushing higher. Given the recent trends,
have triggered a slowdown in property sales, and prices seemingly defying the will of regulators who have been
have declined from that peak in 2016, fitting in with the attempting to cool house prices for several years, it begs
government’s objective of stabilizing the market, and the question whether even tougher restrictions could be
preventing any sharp shock. While a crash is not imminent introduced in the period ahead before the next housing
as a result of the persistent government intervention, its bubble begins to truly inflate. Elliot Clarke, Senior
heavy-handed approach to controlling the market has a Economist at Westpac thinks they won’t give the scale of
serious side effect, however, according to Professor Tao recent gains and the deteriorating external environment
Ran at Renmin University of China’s school of economics facing China’s economy at present. “While the breadth
in Beijing: “All the measures that I can see are disrupting of gains is striking, their quantum remains relatively
the market… They distort the market dynamics, which subdued compared to heights reached in 2015 and 2016,”
includes the possibility of a sharp correction... That really Clarke says. “For new housing, prices in tier 2 are currently
doesn’t help China to sustain its economic growth in the up 6.6 percent over the year, while in tier 3 they have
long term” (Lee). risen 6.0 percent.” So, the gains are far smaller than those
seen in the past, but Clarke says that despite the risks of
Seemingly off the radar of the national property encouraging ever-greater levels of leverage, China needs
statistics, however, a quiet property boom is taking place its housing market to remain strong given threats facing
in some of the more remote corners of China. Soaring other parts of the economy. “Authorities are less likely to
levels of household debt in these rural families is largely react to accelerating price growth in this instance given it
invisible in the statistics because the National Bureau of is being seen in tier 2 and 3, where construction activity
Statistics property price figures ignore vast swathes of and wealth gains are desired, and because — in a macro
the country and only collects data from 70 major cities. sense — strength in residential construction is currently
Meanwhile, while China has a rough data about debts necessary to offset weakness in other key sectors, namely
from calculating how much families have borrowed from utilities and transport,”he says. In a time of trade wars and
banks, there is no breakdown to distinguish between deleveraging in China’s industrial sectors, China will likely
rural and urban households. The ratio between debt to turn to its housing market as it has done so many times
incurred by families and gross domestic product – known in the past (Scutt).
as the household leverage ratio – surged to 49 percent
220
