Guard against regressions in China's macroeconomic policy

By Yi Xianrong
0 Comment(s)Print E-mail, November 13, 2014
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Because of the downward pressure on current Chinese economic growth and the possibility of a real estate market crash, the Chinese central bank and the China Banking Regulatory Commission launched a new housing credit policy on October 1, 2014. This policy is to increase demand for housing on the one hand and, on the other hand, its purpose is to use this new housing credit policy to boost housing demand, creating a prosperous real estate market and getting China's economy back to a fast track of growth.

The new policy will not only disrupt the ongoing periodic adjustment of the Chinese real estate market and cause a change in market expectations, but also implies the end of the "micro stimulus" economic policy implemented by Premier Li Keqiang in the last two two years. The new policy is not simply a real estate policy in nature. It uses excessive preferences to stimulate the generalized housing consumption, so as to rescue the declining real estate market because of decreasing prices. But more than this, it uses real estate as a tool of macroeconomic regulation, pushing China's economic growth back to the old road of a "real-estate-based economy" over the past few years. The new policy shows that the Chinese government still hopes to guarantee economic growth and resolve all kinds of crises and problems in the society and the economy (such as the local government's financing platform crisis and overcapacity, etc.) through the prosperity of real estate. It is why the Chinese macroeconomic policy has shown signs of a comprehensive reversal.

After the 18th National Congress of the Communist Party of China (CPC) and the Third Plenary Session of the 18th Central Committee of the CPC, the Chinese government intentionally turned its "real-estate-based" economic growth mode into a high-quality and high-efficiency economic growth mode, greatly changing the direction of the macro policy. For example, the government implemented directional control over the monetary policy, accelerated the deregulation of its administration, and vigorously transformed the government function, as well as promoted the development of the private enterprises, etc. Thus, over the past few years, the Chinese government did not give much voice to the macro regulation of the real estate market, except placing emphasis on building affordable housing and rebuilding shanty areas. Meanwhile, over the same period, the government basically gave up real estate as a tool of macroeconomic regulation, hoping to regulate the housing market through economic leverage. After persistent fast growth for more than 10 years, the real estate market began to undergo a nationwide periodic adjustment. The Chinese real estate market bubble was gradually squeezed out in this process.

However, the periodic adjustment of the domestic real estate market not only touched the big interest groups, but also affected the local governments' land-based finance and China's GDP growth. Additionally, the risk of bank loans and the local governments' financing platform also began to appear. Thus, China's GDP growth was under greater downward pressure. Faced with this situation, Premier Li Keqiang expressed that the Chinese government would not let economic growth slow down by a large margin, and promised to revive the slower Chinese economy in 2014, so as to enhance investors' confidence in China's economy.

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