China’s economic development over the past 25 years has been nothing short of remarkable. With real GDP increasing by more than 8 percent annually on average, living standards have risen dramatically, and extreme poverty has been eradicated. China has grown to become the world’s second-largest economy—and the largest when measured by purchasing power parity. Developments within China have significant implications worldwide; in 2023, for example, China accounted for about one-third of global growth.
Strong and sustainable growth in China is beneficial not only for the nation itself but also for the global economy. This is particularly important now, as the world continues to recover from the lasting impacts of the pandemic. The International Monetary Fund’s (IMF) 2023 annual report on China emphasizes the importance of securing this growth.
Challenges in Securing Recovery
In the near term, China’s primary challenge is to solidify its economic recovery. Like many countries, China experienced significant output losses during the pandemic. After a growth rate of 3.0 percent in 2022, the GDP rebounded to 5.2 percent in 2023, aligning with government targets.
Unique to China, however, is the substantial adjustment occurring in its property sector. Prior to the pandemic, real estate was a significant part of the economy—accounting for about a fifth of total value added when including related industries—and was a major source of local government revenue. Property prices had become increasingly unaffordable. IMF staff estimate that underlying demand in the real estate sector is likely to decrease by approximately 35-55 percent over the next decade compared to the last. While starts and sales have already adjusted significantly, it will take time to address existing inventories and complete the sector’s adjustment.
Policy Actions to Accelerate Real Estate Recovery
More policy actions are needed to minimize the costs of this necessary adjustment in real estate. The authorities have implemented several measures, such as boosting lending to complete unfinished housing projects, expanding eligibility for first-time homebuyer benefits, lowering down payments, and allowing the refinancing of existing mortgages.
However, additional steps could further expedite the recovery:
- Address Stressed Property Developers: Assist viable developers in repairing their balance sheets and accelerate the exit of unviable ones.
- Reform the Presale Model: Resolve issues related to presales by reforming the model and providing more central government financing to ensure housing completions.
- Allow Price Adjustments: Ensure that property prices can adjust sufficiently to balance supply and demand in the market.
- Expand Housing Access: Increase support for public and rental housing to improve accessibility for residents.
Implementing these measures would speed up and smooth the adjustment to a new equilibrium in the real estate market, supporting sustainable growth in China and contributing positively to the global economy.
Reference(s):
Securing China's sustainable growth a win for China and the world
cgtn.com
