China’s economy had already been slowing before the recent intensification of the woes surrounding real estate developer Evergrande. A key focus for investors is the extent of the latter’s spillover to the broader housing market and economy. In August, floor space of newly started residential buildings fell by 1.7% on a year-on-year basis, while the land area acquired by real estate developers fell by around 10%. Sales of land are a crucial source of funds for local governments, equivalent to around 70% of their official revenues in 2019. So far, house price growth has slowed but has not moved into negative territory at a national level. Overall, policy is clearly less supportive of the housing market at the present time. Going forward, however, if growth were to slow too much, particularly ahead of next year’s 20th National Congress, policymakers could be tempted to relent and fire up this tried and tested tool to boost the economy.
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