Real Estate is No Risk and Slow Growth is OK Say Govt Officials

Businesspeople and investors hoping to benefit from another shot of stimulus from China’s government seem to be in for some disappointment as a pair of high profile economic officials just made statements indicating the country is ready for slower economic growth.

In unrelated announcements, a key leader at China’s central bank and an official from one of the country’s leading think tanks seem to be recalibrating expectations for China’s economic growth this year, and downplayed any potential risks that might be associated with such a slowdown.

China had set a target of 7.5 percent GDP growth this year, but particularly with the real estate sector slowing markedly since the beginning of 2014, many private analysts have been predicting slower growth.

The potential for the slumping property market to trigger a hard landing for the economy had led to some predictions that the government would unleash a new round of broad-based stimulus, or move to prop up the real estate market.

PBOC Says Real Estate Not Likely to Bring a Hard Landing

According to an article in Reuters, Ma Jun, chief economist at the People’s Bank of China told a panel at the IMF and World Bank meetings in Washington yesterday that although the real estate sector is the main risk to China’s economy, the chance of a hard landing is quite small.

“Although we worry about some downside risk like the real-estate slowing down and so on, there are also growth engines, including the service sector in general, the Internet in particular … and healthcare is rising very rapidly,” Reuters reported Ma as saying.

Although the economist conceded that the real estate slump was slowing down overall growth, he also contended that leverage in the sector was too high (he also pointed out excessive borrowing in the state-run sector and local governments), and this was a key reason that the government was shying away from a major stimulus effort.

The Chinese government’s massive economic stimulus in 2009 is widely blamed for driving double-digit increases in home prices during 2011, 2012 and 2013 that inflated the country’s real estate bubble.

CASS Cuts Forecast to 7.3 Percent

Just one day before Ma Jun made his comments at the IMF meeting, the Chinese Academy of Social Sciences (CASS) lowered its forecast for 2014 GDP growth to 7.3 percent. At the beginning of this year the Academy had predicted 7.5 percent before readjusting to 7.4 percent a few months ago.

According to an account in the official China Daily, CASS Vice-President Li Yang said the most volatile factor in growth would be investment. Li also focussed on the benefits of cutting wasteful investment and reducing overcapacity.

Like Ma Jun, CASS acknowledged the impact of the real estate slump on China’s economy.

“Although the government has shored up investment in infrastructure, which we expect to grow more than 20 percent for the full year, that cannot offset the drag of property investment”, the CASS report indicated.

Like his counterpart at the central bank, Li downplayed the risks of reduced activity and investment, commenting that economic growth “has entered the ‘new normal’, and said that this would help to promote more sustainable long-term growth.

The chorus of government voices seeking to reassure about slower economic growth and pushing back against major stimulus efforts means that, while there may continue to be some efforts at “targetted stimulus,” Beijing is not likely to make major moves to boost economic growth or bail out the real estate sector.