China’s Real Estate Sector Faces Prolonged Recovery, Says Former Central Bank Official
In a Tuesday morning interview, Li Dawei, a former member of the People’s Bank of China’s Monetary Policy Committee from 2010 to 2012 and the current director of the Academic Center for Chinese Economic Practice and Thinking at Tsinghua University in Beijing, provided insights into the current state of China’s real estate sector. His remarks highlighted the following key points:
Real Estate Sales Recovery Timeline:
- Real estate sales may start recovering and growing in China’s major cities within the next four to six months. However, in smaller cities, it could take between six months to a year to achieve a noticeable and robust recovery.
Financial Contagion Risk:
- Li suggested that Beijing should establish a mechanism to increase bank lending to property developers to mitigate financial contagion risks.
Support for Developers:
- He estimated that approximately 100 billion yuan (equivalent to around $13.7 billion) would be needed to support developers during the current period of weakness.
Challenges for Smaller Developers:
- Some developers are burdened with heavy debts in third and fourth-tier cities, so their financial situation may not improve in the next six months.
Importance of Bank Lending:
- Increasing lending from commercial banks remains crucial to prevent any liquidity problems from spreading.
Policy Measures:
- Certain policies should be implemented to halt the contraction of bank lending.
Loan Recovery with Sales Improvement:
- When sales recover, bank loans will be repaid.
Focus on Liquidity Support:
- The current priority is to support liquidity, which does not imply that all developers must survive.
Calm Financial Markets:
- Li called for an end to panic in financial markets and urged measures to limit defaults due to slowing sales.
These insights from Li Dawei provide valuable perspectives on the state of China’s real estate sector and the potential measures needed to support its recovery while addressing financial risks. The gradual nature of the recovery, particularly in smaller cities, underscores the complexity of the challenges facing the sector.
