China: Beijing steps up property support

China Macro: April data point to ongoing supply-demand imbalances…

The April activity data published this morning clearly confirm that China’s growth remains unbalanced and driven by the supply side, as we have highlighted repeatedly (see for instance our April Global Monthly here). Industrial production came in stronger than expected, accelerating to 6.7% yoy (March: 4.5%, consensus: 5.5%). By contrast, retail sales once more undershot expectations widely, coming in at 2.3% yoy (March: 3.1%, consensus: 3.7%). Fixed investment also disappointed, with an annual growth of 4.2% in January-April (January-March 4.5%, consensus: 4.6%). Property sector data did not show any signs of improvement, with annual growth of property investment and residential property sales falling even deeper into contraction territory and home prices showing the deepest monthly drop since 2015. The surveyed jobless rate improved somewhat, falling back to 5.0% (March/consensus: 5.2%).

…which go hand in hand with the flaring up of trade spats

As we analysed in our April Global Monthly, China’s excess supply helps keeping a lid on global goods inflation, but also contributes to a flaring-up of trade spats with the West. Earlier this week, the US announced a sharp increase of tariffs for some strategically sensitive goods (such as EVs, semiconductors, batteries, solar cells, steel and aluminum). The EU is also likely to propose additional tariffs on Chinese EVs this summer (tariffs of 25-30% are mentioned, up from the current 10%), and also started investigations into some other sectors. While these measures are still quite limited in terms of total Chinese trade flows, they are a reminder of rising risks on the external front.

Beijing is taking bolder action to stabilise property sector

Meanwhile, the Chinese government is working on more forceful actions to stabilise the stumbling property sector. Today, the PBoC announced to remove the nationwide floors for mortgage interest rates, while lowering the minimum downpayment ratios to 15% (from 20%) for first-time home buyers and to 25% (from 30%) for second homes. What is more, Beijing also urged local governments to buy homes from property developers at ‘reasonable prices’, allegedly supported by targeted financing of state banks, and turn these into affordable housing – in an attempt to bolster home sales and mitigate the financing distress for property developers. While it is still early days and the impact will depend on effective implementation, the recent measures and communication signal policy makers’ increasing sense of urgency to tackle the biggest domestic drag to the Chinese economy. We will look at these issues, and the potential impact on growth, more closely in the China part of the May Global Monthly.