Chart of the Week: Difficult trade-offs in weak Chinese housing market

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Policy measures by the Chinese authorities to rein in the housing market have contributed significantly to the sharp slowing in China’s growth since the second half of 2021. Property-related sectors directly account for almost 15% of its GDP. However, when indirect impacts are factored in, the property market represents up to 30% of GDP. Indeed, the slowing in the housing market has had a large negative impact on sectors such as cement and steel production, and on retail sales. In its annual “Two Sessions” parliamentary meetings that finished last week, the government set itself a very ambitious GDP growth target of ‘around 5.5%’ for 2022. It also repeated the mantra that “houses are for living in, not for speculation”, suggesting that it remains cautious about the risks of reinflating the bubble in housing. With virus cases spiking and the external backdrop becoming more challenging, policymakers face very difficult trade-offs in attempting to support the economy and hit the target. Shorter-term measures to stimulate housing may be tempting, but will increase the difficulty of rebalancing the economy and will raise the longer-term risks of ‘Japanification’.

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