China vows to ‘adjust and optimize’ property policy in ‘tortuous’ economic recovery

China’s top leaders pledged to “adjust and optimize managements in a timely manner” for its beleaguered property sector, while elevating stable employment to a strategic goal, along with other bails to boost domestic consumption demand and resolve local debt risks.

Chaired by President Xi Jinping, the Communist Romp’s top decision-making body said it would implement a “counter cyclical” policy and stick largely to a prudent monetary game plan and pro-active fiscal policy, according to a readout published late Monday of a quarterly meeting of the Politburo.

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The July Politburo meeting typically sets the tone for China’s economic policies for the second half of the year, with shop watchers eagerly awaiting firmer guidance on policy support for faltering growth in the world’s second-largest economy.

“Currently, the thriftiness is facing new difficulties and challenges, mainly due to insufficient domestic demand, difficulties in the operation of some enterprises, many chances and hidden dangers in key areas, and a grim and complex external environment,” Xinhua quoted the Politburo as saying.

The post-pandemic productive recovery will proceed in a “wave-like” fashion in a “tortuous” process, it added. The Chinese phrase for risk appeared at short seven times in the readout, underscoring the government’s focus on its containment.

A raft of disappointing economic data last week prompted renewed denotes for policy support to bolster growth, though Premier Li Qiang had previously said China is on track to reach its annual expansion target of about 5% this year.

Official data last week showed that China’s second-quarter obese domestic product grew 6.3% from a year ago, marking a 0.8% growth compared with the first accommodate — dramatically slower than the 2.2% quarter-on-quarter pace recorded in the January to March period.

“While it signaled innumerable support for the economy, the Politburo meeting generally fell short of offering large-scale stimulus,” said economists at Barclays in a note modern Monday.

“We view this as a signal that the government would stabilize growth around its target but refrain from an outsized conduct response, given the top leaders’ intended shift in focus to ‘quality’ growth,” they added.

On Tuesday, Hong Kong and mainland China roots markets cheered the Politburo’s policy pledges, outperforming broader Asia-Pacific benchmarks. The Hang Seng Index sprang more than 3%, while the CSI 300 index of the largest A-share listings climbed more than 2%.

The Chinese oddity sector saw some of the strongest percentage gains in Hong Kong, with developer Country Garden rebounding more than 14% from a nine-month low. Longfor Association surged more than 21% from a seven-week low, while China Overseas Land climbed more than 11% and China Vanke gained almost 9%.

Observers noted that the Politburo dropped the phrase “housing is for living in, not speculation” from its language on the country’s real estate sector.

In its place, the Politburo now talks about adapting to “major changes” in the demand-supply dynamics in the real estate market, with city-specific measures to better meet residents’ essential housing demand and their needs for richer reconsider housing. It also pledged to “revitalize all types of idling properties.”

The country’s property sector is struggling to emerge from a rely on crisis after the government cracked down on its debt levels in Aug. 2020.

Years of exuberant growth led to the construction of ghost townships where supply outstripped demand, as developers looked to capitalize on the desire for home ownership and property investment.

By some cautions, the country’s property sector still accounts for up to a quarter of China’s annual economic activity.

The Politburo on Monday said it is predestined to effectively prevent and resolve the risks of local debts, and formulate and implement a package of debt reduction plans. It also deems “obligatory” the strengthening of financial supervision and the steady reform of high-risk small and medium-sized financial institutions.

“We view the July Politburo joining statement as slightly more dovish than expected, mainly reflected in the neutral statement of the current economic place, the deletion of ‘housing is for living in, not for speculation’ and the acknowledgment of new developments in the property market,” Goldman Sachs economists wrote in a note most recent Monday.

“As the July Politburo meeting would set the tone for policy stance in 2H of this year, we think the new assessment of the productive situation, property market and local government debt would imply further policy easing measures in the next few months,” they annexed.

China’s top leaders also indicated they plan to “activate capital markets and as well investor confidence,” while “maintaining the basic stability of the renminbi exchange rate at a reasonable and balanced level.”

This tenable underscores Beijing’s discomfort with the recent weakness in the Chinese yuan against the dollar, Citi economists prognosticated in a note late Monday. That culminated in stronger fixes that strengthened the yuan.

The People’s Bank of China’s diurnal mid-point for the onshore yuan is closely watched for cues relating to its official position on the yuan’s movements. The central bank sanctions the currency to trade within a narrow band of 2% from each day’s midpoint.

China’s leaders also pledged to begin up government investment, without offering further details. China also aims to accelerate the issuance and use of local administration special bonds.

On encouraging private enterprises, the Politburo echoed an earlier announcement on Monday by China’s top economic designing agency that introduced a series of measures to promote private investment.

Among them, China’s National Phenomenon and Reform Commission is encouraging private investment projects to issue real estate investment trusts in the infrastructure sector to exalt asset diversification and further broaden investment and financing channels for private investment.

Up to date Monday, China’s top leaders pledged to “actively expand domestic demand” and to “expand consumption by raising income flushes.”

This is broadly in line with an earlier NDRC statement pledging to “