“Housing is for living in, not for speculation”

There is no change to the epochal shift in China’s macro settings for property. The dream is over. Goldman has more.

President Xi chaired the July Politburo meeting today which set the tone for the broad policy stance in 2H of this year. The statement following the meeting reiterated the “Dynamic Zero Covid” policy stance and focused on implementing the already announced policy measures. On property, the statement restated “housing is for living in, not for speculation” (which was mentioned in the April Politburo meeting), and highlighted that local governments should take responsibilities in “guaranteeing the delivery of homes”, consistent with China Banking and Insurance Regulatory Commission (CBIRC)’s recent statement.

Main points:

1. President Xi chaired the July Politburo meeting today. The statement was mostly a reiteration of implementing the already announced measures, though on the fiscal front, today’s statement hinted at additional local government bond issuance quota. Specifically on fiscal policy, the statement stated it will make the full use of local government special bond (LGSB) proceeds and the limit on outstanding LGSB this year, which according to our calculation, could imply at most another RMB 1.5 trillion LGSB issuance quota available for use this year (according to the MOF and our estimates, the actual outstanding LGSB amount is RMB 20.4 trillion, assuming the annual quota will be fulfilled by year-end, and the limit on the overall LGSB outstanding this year is RMB 21.8 trillion). On monetary policy, Politburo reiterated that liquidity conditions should be reasonably ample, credit support should be stepped up, and policymakers would make the best use of the newly announced credit quota for policy banks and infrastructure investment fund. In recent State Council meetings, policymakers announced an additional RMB800bn policy bank loan quota, and another RMB300bn credit support by policy banks to facilitate infrastructure investment.

2. The July Politburo meeting statement toned down the nationwide full-year economic growth target by requiring “large and capable” provinces (likely referring to coastal provinces which are less hit by Covid lockdowns, in our view) to work hard on achieving full-year economic targets, which stood in contrast to the statement of “working hard to achieve full-year targets” in the April meeting.

3. Today’s statement restated that policymakers would stick to the “Dynamic Zero Covid” policy stance, and highlighted “political considerations” behind this decision. However, policymakers also required to ensure smooth operations of key functions of the society, while working on tracking new variant of Covid and development of Covid treatment. This may imply potential adjustments to the Dynamic Zero Covid policy implementation similar to what we saw in late June as the Covid situation evolves.

4. The discussion around property is not new. The July Politburo meeting emphasized “housing is for living in, not for speculation”, which was mentioned in the April Politburo meeting as well, and added that local governments should take responsibilities in “guaranteeing the delivery of homes”, consistent with CBIRC’s recent statements.

Relatedly, an FT article on July 28 reported a potential RMB 200bn program by the PBOC to help facilitate property completions. We think regulators and local governments are focusing on continuing construction of presold projects while keeping the broad policy on housing unchanged.

5. In response to the rural bank event in Henan, today’s statement required policymakers to ensure financial stability and properly handle risks from rural banks (Media report suggests policymakers would use 320bn LGSB quota to replenish capital for small and medium-sized banks). On platform company regulation, the statement echoed the positive tone from the April meeting and urged policymakers to complete regulation on platform companies and facilitate a batch of sample investment projects with “green light”. Politburo also discussed securing the supply of food and energy, stabilizing prices, supporting employment of college graduates and working hard on improving people’s livelihood, which are reiteration of recent policy communications.

6. In general, the July Politburo meeting suggests to us that the “Dynamic Zero Covid” policy stance is here to stay, and while full-year economic targets appear challenging on a nationwide basis. Policymakers would maintain their supportive stance, in particular continue to push for infrastructure investment to support the overall economy. The lack of mentioning of a potential property fund, which was widely discussed over media in recent days might appear disappointing to investors, but there is still a chance that PBOC and relevant government institutions would follow up and announce concrete supportive measures to the property sector in the next few days/weeks.

Houses and Holes
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      • Absolute BeachMEMBER

        Yeah. What does that Winnie the Poo esque bloke know about getting ahead? Is he a leaner or what? Only fools know how to make all the stuff (like everything in Bunnings and Kmart) when we’ve got houses to sell to each other. And back again. And back again. And get proper rich doing it.

          • Absolute BeachMEMBER

            “Death Spiral” !!! I’m impressed Mr. Ironorebust – with that excellent turn of phrase, you could get a gig writting click-bait headlines here on MB!!!!
            All jokes aside, I think we will do a recession and possibly significant asset price destruction. Death Spiral? Probably not.

  1. Ailart SuaMEMBER

    “Housing is for living in, not for speculation”

    Shit like this happens when citizens say and do nothing about the massive failings of the Constitution and electoral system – that not one of us had any say in the ‘shaping’ of. It’s the same old story. Following each and every, semi-democratic at best, election, States, Territories and Country once again are faced with 3 or 4 years of incompetence and corruption by one of the only two political parties the system allows us to have.

    I think by this stage, most of us would have woken up to the fact that leadership doesn’t emanate from the drongo’s we elect, it emanates from mega-wealthy, global and local elites. Fact – what’s occurring now is simply an engineered repeat of what was engineered back in the 1970’s. The elite’s objective then, was to crush the unions to make way for modern neoliberalism – which, of course, has resulted in a total fu.k-up the entire global financial system. Fast-forward 40 plus years and the objective today, is to crush the spirit of the citizens, via both the ‘plandemic’ and recession, to make way for a global ‘reset’. A ‘reset’ that involves a cashless society, diminishing ownership, 50% unemployment – and authoritarian control that resembles that of the CCP – possibly worse.

    Here’s something to chew over. Were you aware that viruses, including coronaviruses, have never, ever been isolated. The spiky little images we’re shown, are simply computer images. Put another way, it’s like someone has gathered some horse hair, horse hoof, horse brain matter and some rhino horn – fed it into a computer and produced an image of a unicorn. For the complete story, read ‘Virus Mania’ by Torsten Engelbrecht, Dr. Claus Kohnlein, MD, Dr Samantha Baily, MD and Dr Stefano Scoglio BSc PhD

    Yes, the peasants are so, so gullible – aren’t they Mr Fauci, Mr Gates, Mr Bourla etc,etc, etc. Having almost complete control of the narrative and the story tellers sure helps when you want to tell lies, eh?

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