Has China's multi-year property slump come to an end?

Our briefing on critical developments in China's economy as of Tuesday, 7 January, 2025.

Our briefing on key economic and financial developments in China as of Tuesday, 7 January, 2025:

• The Shanghai and Shenzhen Stock Exchanges have convened meetings with foreign institutional investors to discuss the further opening of China’s A-share market.

• Chinese private enterprises emerge as the big winners in 2024 from supply-side tax cuts and credit guidance.

• A leading think tank says China’s multi-year property slump could be approaching an end, based on data for home sales in terms of floor space from the final months of 2024.

• Chinese mortgage borrowers enjoy New Year’s interest rate cuts, in a move that regulators hope will help to achieve the long-vaunted goal of boosting consumer spending.

The Shanghai Stock Exchange convenes meeting with foreign investors on A-share opening

The Shanghai and Shenzhen Stock Exchanges have just convened separate meetings with foreign institutional investors active in China, for advice on recent developments in the Chinese A-share market.

Shanghai Securities Journal reports that topics discussed included deepening the external opening of China's capital market and smoothing out channels of access for foreign capital Chinese officials also discussed improvements to the connect measures that link the Shanghai and Shenzhen share markets with Hong Kong, as well as China's Qualified Foreign Institutional Investor (QFII) scheme.

"Foreign institutional investors are major participants in the A-share market, and the Shenzhen Exchange places great importance on communication exchange with them," said an executive from the Shenzhen bourse.

"[We] will continually strengthen market transparency and predictability, and operate an excellent environment for foreign institutions to undertake operations and invest."

China's private enterprises the biggest winners from tax cuts and credit guidance in 2024

During the period from January to November 2024, Chinese private enterprises reaped one trillion yuan (approx. USD$136.5 billion) in new tax cuts, fee reductions and tax rebates, according to figures just released by the State Tax Administration.

This amount accounted for around 71.3% of all such tax cuts, fee reductions and rebates applied in China across the period.

Chinese authorities also sought to expedite the growth of private enterprises in 2024 by driving the state-owned banking sector to sharply increase their access to credit.

As of the end of October 2024, the outstanding balance of financial inclusion micro-and-small loans stood at around 33 trillion yuan, for a rise of 15% compared to the same period the year previously.

Loans to special new elite enterprises stood at 4.23 trillion yuan, for a rise of 13.6%, while lending to tech-sector SMEs totalled 3.17 trillion yuan, for a surge of 21%.

A People's Daily editorial on the growth in lending to private enterprise quoted Xi Jinping as stating that "the private sector economy is a major outcome of the development of the socialist market economy."

Has China successfully brought an end to its multi-year property slump?

China's property market managed to extend a recovery that began in October to the end of 2024, according to research from the China Index Academy.

In December, 30 key Chinese cities saw new home sales floor space rise by around 20% in both on-month and on-year terms.

20 key Chinese cities saw pre-owned home transaction floor space rise around 20% in on-month terms, and nearly 70% compared to the same period last year.

Academy director Cao Jingjing (曹晶晶) said to Securities Daily the data is a sign that China's property rescue policies in 2024 have finally managed to arrest a multi-year decline in the housing market.

"With the continual impact of forceful policies, ever since the fourth quarter of 2024 both new home and pre-owned home transactions levels have remained high, and the market has seen gradual stabilisation," Cao said.

China has been in the throes of a property slump since 2021, bringing about the collapse of leading developers that were highly leveraged on the back of offshore debt issues.

Domestic economists blame the property slump for ailing levels of consumption and household demand in the wake of the Covid pandemic.

Chinese policymakers stepped up measures to provide relief to the property market last year - chief amongst the an unprecedented loosening of restrictions on real estate lending by the central bank in May.

Beijing enacted follow-up measures in September, as part of a preliminary raft of fiscal and monetary loosening.

In November, China's Ministry of Finance also issued the "Announcement on Tax Policies to Expedite the Healthy and Stable Development of the Property Market" (关于促进房地产市场平稳健康发展有关税收政策的公告).

Starting from 1 December, the Announcement expanded discounts on deed duties for residential property transactions and land VAT.

Chinese mortgage borrowers reap gift of New Year’s rate cuts

As of 1 January 2025, China’s commercial banks and housing provident funds had all made automatic adjustments to the rates on their outstanding mortgages, without borrowers needing to apply for them independently.

21st Century Business Herald reports that the move could help boost lacklustre domestic demand, by leaving households with more spending money each month for consumption.

An anticipated 60 basis point reduction on a million yuan home loan, from 3.9% to 3.3%, would result in more than 300 yuan in savings on monthly interest expenditures for Chinese mortgage borrowers.

The move arrives after the Chinese central bank cut its official policy rates in 2024, to provide support to the economy as it continued to struggle with lacklustre demand and a multi-year property slump.

Last year, the 5-year benchmark loan prime rate (LPR) saw a total decline of 60 basis points. Mortgage rates in China are generally linked to the 5-year LPR.

The rate cuts triggered concern amongst Chinese economists that the banking system would see a wave of advance repayments that could undermine its loan book, as earlier borrowers saddled with higher rates sought to take advantage of the central bank’s reductions.

This in turn prompted calls for Chinese regulators to allow banks and other home loan providers to cut rates on outstanding mortgages.