China fights itself to an economic standstill

It’s not going well in China:

The last time a top Chinese leader impromptu addressed thousands of officials in February 2020, President Xi Jinping called for a “people’s war” against Covid-19 at the outset of the pandemic.

On Wednesday, Premier Li Keqiang held a similarly rare video call with thousands of cadres across the nation to warn of an even worse economic crisis than two years ago, calling on them to better balance Covid controls and economic growth.

Yet many government officials charged with implementing policy at the ground level aren’t quite sure who to listen to: Xi continues to emphasize the need for officials to push for zero Covid-19 cases, even as Li continuously urges them to bolster the economy and hit preordained growth targets.

That dilemma is leading to paralysis within a nation normally hailed for speedy implementation of diktats from above, according to eight senior local government officials and financial bureaucrats who requested not to be named because they aren’t authorized to speak publicly.

Here’s another summary of its attempted property fixes to date:

May 24

  • LENDING PUSH: People’s Bank of China Governor Yi Gang and other officials met with 24 major financial institutions. The meeting called on banks to accelerate the delivery of approved loans, and also to maintain the stable growth of property loans.

May 20

  • KEY RATE CUT: Chinese banks cut a key interest rate for long-term loans by a record amount, a move that would reduce mortgage costs and may help counter weak loan demand.

May 17

  • MULTIPLE PROPERTIES: Chinese cities are making it easier for families with more children to own multiple properties, as authorities struggle to revive the housing market and boost birth rates. Hangzhou, the eastern city where internet giant Alibaba Group Holding Ltd. is based, said that households with three children are now allowed to buy one more residence.

May 16

  • CHEAPER MORTGAGES: The People’s Bank of China effectively cut the minimum interest rate for first-home buyers’ new mortgages, enabling them to borrow money at an interest rate as low as 4.4%, down from 4.6% previously.


  • CSRC VOW: The China Securities Regulatory Commission vowed to actively support property firms seeking financing via bonds. It also plans to study expansion of a trial project for infrastructure-oriented real estate investment trusts.

April 29

  • POLITBURO BOOST: China’s top leaders promised to boost stimulus and contain the country’s worst Covid outbreak since 2020. The Communist Party’s Politburo pledged to “strengthen infrastructure construction in an all-around way” and to support the housing market. While officials repeated the phrase that “houses are for living in not for speculation,” the government said it would also work to meet the demand for better quality housing and “optimize” the supervision on developers’ income from project pre-sales.

April 25

  • EASIER FINANCING: The PBOC held a meeting with about 20 major banks and asset-management firms to help resolve crises at a dozen large real estate firms including China Evergrande Group. The central bank sought looser requirements on a range of financing, from lending for property acquisitions to extending maturities on debt.

April 20

  • HOMEBUYER HELP: Financial institutions should improve loan policies and flexibly adjust home-mortgage payments for individuals that are affected by Covid outbreaks, according to China’s central bank. It also vowed to maintain stable and orderly real estate financing.

April 6

  • UNWINDING CURBS: China’s local governments stepped up easing of home-buying rules after top policy makers vowed to support the property market. More than 60 municipal authorities loosened regulations in the first quarter, according to a report by real estate data firm China Index Holdings.

March 16

  • NO TAX: China won’t expand a trial on property taxes this year, reported the official Xinhua News Agency. The country lacks the necessary conditions to expand the pilot program in 2022 after preliminary research and investigations conducted by some cities, it said.

Feb 18

  • MORTGAGE DOWNPAYMENTS: Banks in several Chinese cities cut mortgage down payments for some homebuyers, in a move that may boost flagging housing demand, local media reported.

And what it has achieved:

Why? Because authorities keep addressing the wrong risk. It is not the price of credit. It is the availability of credit to developers which are going bust. And, as such, nobody wants to buy from them owing to counterparty risk.

There is no property recovery of substance coming until China reveres the three red lines constraining developer leverage.

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