China’s CSI300 stock index has been in a difficult situation for 10 days. The index, which tracks stocks on the Shanghai and Shenzhen exchanges, has fallen 11% since hitting a year-to-date high on Oct. 8. The sharp decline that put the index in correction territory continued Thursday with another 1% drop.
Who is the culprit? Stimulus, or lack thereof.
Thursday’s decline came after the Chinese government announced two new measures targeting the real estate market. China has announced that financing for “whitelist” real estate projects will reach 4 trillion yuan ($561.7 billion) by the end of this year. A total of 2.23 trillion yuan ($313.1 billion) has already been approved for a “white list” of developers.
The “white list”, announced in January, is a list of approved developers eligible for faster financing to ensure unfinished housing projects are completed and delivered to buyers.
China also aims to renovate one million homes in dilapidated downtown areas, and residents will be compensated accordingly.
However, these measures appear to have fallen short of what investors had hoped for, especially after authorities announced a series of stimulus measures in late September before China entered a week-long National Day holiday. This is especially true after it triggered the market rally. The ensuing press conference on the stimulus package overwhelmed investors and caused the stock market to fall.
The Hang Seng Mainland Property Index closed 6.7% lower on Thursday, down 23% from its year-to-date high of Oct. 2.
“Not enough”
Macquarie global economists Larry Hu and Yuxiao Zhang said in a note on Thursday that the measures “may not be enough to turn around the housing market.” The memo added that authorities should have expanded a program announced in May that allows the government to act as the buyer of last resort in the housing market.
Just a few years ago, China’s real estate sector was estimated to account for one-third of the country’s economy. But the sector has been in a slump since the Chinese government cracked down on developers’ high debt levels in 2020.
Years of crackdowns have affected home prices and consumer confidence, as around 70% of the country’s household assets are held in real estate. Additionally, prospective buyers may refrain from purchasing if they expect house prices to continue to decline, which will impact developers who rely on sales revenue. McCauley estimates that sales revenue will account for about 45% of total developer funding.
But while many analysts were disappointed, others saw Thursday’s announcement as a more “realistic position.”
Bruce Pang, chief economist for Greater China at Jones Lang LaSalle, said in comments to Bloomberg that the Chinese government wants the real estate sector to be “a future stabilizing factor, not a driver or a drag on economic growth.” He said he was looking forward to it.
UOB’s research note published on Thursday said the government would continue to monitor the property market closely, and the bank expected the government to continue to step up support as needed, but that it would be “rather than reversing the trend. “Rather, it’s about dealing with downsizing.”
