RMB 119B Budgeted for Low Income Housing to Prop Up Market

China took a step designed to both cool down its housing market and perk up its economy last week when it set aside RMB 119.3 billion ($19.2 billion) to build low cost homes.

According to a story in the Wall Street Journal, the Ministry of Finance announced on Friday that the funds would be administered through a fund set up in March this year.

The Xi Jinping government has placed increased emphasis on building affordable housing as a way to ensure that middle and lower income citizens can afford to buy their own homes, particularly in the country’s first tier cities.

“We must be determined to spend more efforts to solve various problems in the housing market,” the official Xinhua news agency quoted Xi as saying in a politburo meeting on Tuesday.

Last October the official Xinhua news agency quoted Xi as telling the politburo that, “We should make every effort to increase housing supply while attaching importance to the adjustment of the public’s housing demand.”

The government will establish a housing supply system and will be mainly responsible for the supply of affordable housing while market forces will govern the supply of other types of housing, Xi said at the time.

Appointing an Old Pal

In another move aimed at making affordable housing a reality, earlier last week Premier Li Keqiang appointed long-time ally Chen Zhenggao to a key post at the country’s Ministry of Housing and Urban Rural Development.

Chen, who formerly served as governor of Liaoning province, is now party secretary of the Ministry of Housing and Urban-Rural Development and is widely expected to soon replace minister Jiang Weixin, who has reached the retirement age of 65.

From 2004 to 2007 Chen and Li worked together in Liaoning province where the now-Premier was then the provincial party secretary and Chen was the mayor of the province’s largest city, Shenyang.

During that period, Li pioneered programs to build affordable housing to replace shanty towns in the province’s cities and Chen took over these efforts when he eventually replaced Li as the province’s governor.

Affordable Housing as Stimulus

While the government-supported housing programs may be largely aimed at ensuring shelter for the country’s middle class, the government is pouring funding into the initiative as way to prop up a slowing economy.

Many economists estimate that as much as 25 percent of China’s GDP is dependent on the property market, and with private developers cutting back spending as the market slows, more government spending on housing is a way to spur growth without pumping more liquidity into a system struggling to reduce its dependence on cheap credit.