Government’s Attempt to Rescue Real Estate Market Falls Short

governments-attempt-to-rescue-real-estate-market-falls-short

The administration in Beijing is finding the long summer days to be a bit much. The authorities announced earlier this week a small decrease in interest rates that was unimpressive in scope and aim in an effort to stabilize the ailing real estate market.

The failure of lower interest rates to address systemic issues in real estate and finance when the issue has nothing to do with interest rates being too high will be obvious to those who remember the bad old days when the west was shaken by a series of crises like those involving Northern Rock, Bear Stearns, and Lehman Brothers. 

The government of modern-day China is attempting to stabilize an unstable economy.

China’s economy is obviously in trouble. Despite strict limits on capital outflow, the yuan exchange rate is under pressure, and the government may find it difficult to stop individuals and businesses from attempting to leave China with money. 

Despite being at their lowest point since the end of 2022, stock prices—which, to be fair, are only tangentially related to the economy—show a lack of confidence among Chinese families, investors, and private companies in a deflationary climate.

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Facing the Reality

The real estate market is the direct source of this unsettling situation. Transaction numbers are drastically down, and if anything, the stated decline in property values appears to be picking up speed. 

Evergrande, the real estate developer at the center of the issue, filed for bankruptcy protection against creditors in New York, Hong Kong, and the Cayman Islands during the last several days. 

Another large company, Country Garden, which was praised a year ago as a good corporate citizen, has defaulted on some of its foreign bond commitments and is currently battling as a penny stock to rebuild market trust as a liquidity crisis has grabbed it and many of its peers.

China’s economic downturn is neither a result of zero-Covid policies nor is it a cyclical occurrence that will disappear with time and more policy loosening. 

It primarily concerns the country’s economic growth model failing, with the first housing crash since a previous housing assistance system was converted into the largest and, for a time, most significant property market in the world.

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Source: theguardian

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