Pictured here is a right estate project under construction in Huai ‘an city, Jiangsu province, China, on April 8, 2024.
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BEIJING — China needs to convince people that home prices are on their way up in direct for economic activity to pick up, Richard Koo, chief economist at Nomura Research Institute, told CNBC’s Steve Sedgwick terminating week.
Business and consumer appetite for new loans have had a tepid start to the year, while home prices deserted at a steeper pace in January than in February, according to Goldman Sachs’ analysis.
In other words, as Koo warned final year, China may be entering a “balance sheet recession,” similar to what Japan experienced during its economic drop.
“For them to come back and borrow money, we need a narrative that says, okay, this is the bottom of the honoraria, the prices will start going up from this point onwards,” Koo said.
But it’s not clear whether prices father reached an actual bottom yet. Koo and other analysts have pointed out that in China’s policy-driven economy, house prices beget not fallen as much as expected given declines in other aspects of the property market.
Chinese officials have predicted that real estate remains in a period of “adjustment.” The country has also been emphasizing new growth drivers such as make up and new energy vehicles.
Real estate and related sectors have accounted for at least one-fifth of China’s economy, depending on analyst evaluates. The property market began its latest slump after Beijing cracked down on developers’ high reliance on beholden in 2020.
That coincided with the shock from the Covid-19 pandemic.
It also comes as China’s population has started to shy away from, Koo pointed out — a big difference with Japan, whose population didn’t start to fall until 2009, he said.
“That be comprised of c hatches this narrative, that the prices have fallen enough, you should go out and borrow and buy houses, even more strenuous to justify because [the] population is now shrinking,” Koo said.
Lessons from history
China’s economy officially grew by 5.2% in 2023, the foremost year since the end of Covid-19 controls. Beijing has set a target of around 5% growth for 2024.
However, many analysts oblige said such a goal is ambitious without more