With inflation stubbornly high and the government trying to work down its debts, China cannot afford another superhero stimulus like the Rmb4,000bn package that helped rescue the world from despair in 2008.
Instead Beijing is showing unexpected resolve in its campaign to cool the once-sizzling property market, (potentially) China’s economic kryptonite.
The importance of the Chinese property sector cannot be overstated. Property construction directly accounts for nearly 15 per cent of China’s gross domestic product and drives its demand for commodities, especially iron ore and copper. Jonathan Anderson, an economist with UBS, has called Chinese property “the single most important sector in the entire global economy”.
With the real estate market looking bubbly early last year, the government introduced a series of policies to rein in prices, from higher mortgage rates to restrictions on the numbers of homes people can buy.
There are signs that these measures are finally starting to bite – at just the time that the United States and Europe are on the brink of a double-dip recession.
Chinese property price increases have all but stalled in month-on-month terms and many analysts think the market is at a tipping point. With huge and rising unsold inventories, housing prices in major cities should register outright declines in the coming months, further denting construction activity and broader economic growth.
Hence the big question for China and the world. Will Beijing take fright at the global troubles and relax its grip on the property market? Evidence this week suggests not.
China Securities Journal, an official newspaper, reported on Tuesday that the government will expand restrictions on home purchases by the end of August, implementing them in about 30 new cities.
Then, in a meeting of the Politburo, the Communist Party’s top decision-making body, President Hu Jintao said that, despite China’s agricultural outsourcing, more must be done to protect arable land from being swallowed up by construction projects – a signal to slow down, not speed up, development.
Beijing, it seems, has learned its lesson from 2008. Housing prices soared days after it eased its property clampdown at the time. Along with being disruptive to the economy, the stop-and-start policies undermined the government’s credibility in the real estate market.
This time around, Beijing is regaining credibility by staying the course on property tightening. That will be a good thing for China’s property market in the long term. While bad news for the global economy, that China won’t unveil a new stimulus is already the dominant market view.
But for countries and investors hoping for a short-term boost from Chinese demand, it is one more reason to be worried.