Home » Can Chinese local governments use their brains to financially rescue the property market to stimulate the economy? (Picture) Finance | Real Estate | Real Estate |

Can Chinese local governments use their brains to financially rescue the property market to stimulate the economy? (Picture) Finance | Real Estate | Real Estate |

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The Chinese government recently released 16 measures for the financial rescue of the property market. (Image source: Adobe Stock)

[Look at China News on November 20, 2022](See comprehensive report by Chinese reporter Li Zhengxin) The Chinese government recently released 16 measures to financially rescue the property market. According to analysis, the government still wants to use real estate to stimulate economic growth and increase fiscal revenue. And local governments have also used their brains to set up companies to buy land in land auctions.

The real estate sector, which accounts for a quarter of China’s economy, has been mired in a debt crisis that has dented market confidence and weighed on economic growth. Since the beginning of this year, the government has continued to try to relax the regulation of the property market and rescue the market.

The “Notice on Doing a Good Job of Financially Supporting the Stable and Healthy Development of the Real Estate Market” issued by the People’s Bank of China and the China Banking and Insurance Regulatory Commission involves maintaining the stability and order of real estate financing, actively providing financial services for “guaranteeing the delivery of buildings”, and actively cooperating with those in trouble There are a total of 16 specific measures in six aspects, including risk management of real estate enterprises, protection of the legitimate rights and interests of housing finance consumers, phased adjustment of some financial management policies, and increased financial support for housing leasing. These policies are more powerful than ever, and some analysts even believe that they are “epic real estate bailouts.”

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Song Weijun, a researcher at the overseas think tank “Tianjun Political Economy”, said that the official rescue of the property market is to save the government’s finances. More than 70% of the housing prices are various types of taxes and fees from the government. In addition to land transfer fees, a considerable part of the funds for people to buy houses is handed over The government is the main source of government revenue. In addition, there are more than 40 upstream and downstream industries of real estate, all of which are prosperous. If real estate improves, other industries will also be driven, which will also involve the government’s fiscal revenue.

Reuters reported on Nov. 18 that economists analyzed China’s real estate market and expect new home prices to fall in the first half of 2023 and rise throughout 2023, while the pace of decline in sales will slow. The analysis is based on a Reuters survey of 16 analysts and economists between Nov. 9-17.

According to the “Wall Street Journal” report on November 18, China’s real estate market is sluggish, and some local governments have found another way.

Buyers in the local-government land auctions included state-owned companies that were formed shortly before the sale, according to auction results and public records reviewed by The Wall Street Journal.

For example, in the first 10 months of 2022, the land transfer transaction value of residential land in Zhengzhou City, Henan Province was about 25 billion yuan, a decrease of more than 50% year-on-year. If dozens of government-linked enterprises hadn’t participated in the three centralized land supply auctions in Zhengzhou, the decline in transaction value would have been much greater than this figure. Of the 73 pieces of residential land sold in Zhengzhou, 54 were won by local companies controlled by the Zhengzhou municipal government or district government or their subordinate departments.

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The Wall Street Journal believes that these local government operations may indicate that these funds, either from within the local government system or from bank loans, are channeled to state-owned enterprises to purchase land, which is then recorded as fiscal revenue by local governments.

Under such circumstances, the Beijing authorities may place the impetus of economic growth on real estate. Liu Shijin, member of the Monetary Policy Committee of the People’s Bank of China, said at the Caixin Summit on November 17 that China’s economic growth rate is far below the potential growth rate due to the impact of the new crown epidemic this year. He suggested that the authorities should set at least a 5% economic growth target next year.

Liu Shijin warned that if China’s economy continues to slow down, labor productivity will decline, and the RMB exchange rate will also be affected accordingly.

Yang Weimin, deputy director of the Economic Committee of the National Committee of the Chinese People’s Political Consultative Conference, also said at the meeting that “the biggest risk of current economic development is that the growth rate is too low.” He believes that the Beijing authorities should reverse this situation in time.

However, the International Monetary Fund (IMF) estimates that China’s economic growth rate will only be 3.2% in 2022 and 4.4% in 2023.

Source: Watch China

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