Beijing

A former adviser to the People's Bank of China (PBOC), Li Daokui, has offered a sobering assessment of China's property market, suggesting that it may take up to a year to fully recover. According to a report by Bloomberg, Li is urging the Chinese government to take proactive steps to boost lending to property developers in order to prevent further defaults.

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Li Daokui, a former member of the PBOC's monetary policy committee, revealed in an interview that while property sales in China's major cities could potentially rebound in the next four to six months, smaller cities may require up to a year to experience substantial recovery.

“The collapse in the property market over the past two years has left real estate giants close to default, triggered market panic, and left housing projects unfinished,” Bloomberg quoted Li as saying. He further emphasised on the severity of the situation. He proposed the creation of a mechanism to increase bank lending to property developers, estimating that approximately 100 billion yuan ($13.7 billion) would be needed to support developers during the ongoing downturn.

Li, a well-known academic and commentator on China's economy, served as an adviser at the PBOC from 2010 to 2012 and currently directs the Academic Centre for Chinese Economic Practice and Thinking at Tsinghua University in Beijing.

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Bank lending to the real estate sector has seen a significant decline in recent years due to rising financial distress. Loans for property development have dropped every month since April, registering a 25 per cent year-on-year decline in August.

"Some developers are overweight in third and fourth-tier cities, so their financial situation won't be able to improve in the coming six months," Bloomberg cited Li. "In the meantime, increased lending by commercial banks is still extremely important in order to prevent any propagation of liquidity problems. Some policy has to be in place to stop the shrinking of bank lending," he added.

Li proposed that the central bank or the National Financial Regulatory Administration, which oversees banks, could form a committee with the nation's six largest commercial banks to jointly provide loans to support the property sector.

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In the long term, Li believes that China's property sales could stabilise at 1.1-1.2 billion square meters annually, compared to a peak of about 1.8 billion square meters in 2021. He expects the property market to remain a key driver for the economy but with a reduced impact.

While Li does foresee the possibility of another interest rate cut by the PBOC before the end of the year, he does not anticipate numerous or major cuts due to relatively low profit margins for banks. Instead, he stressed that policies to stimulate demand for consumer goods and housing would be more effective in supporting the economy.

Li expressed anticipation for the release of more detailed plans for the resolution of local government debt, which, combined with measures to bolster the property sector, would be "much more important than cutting the interest rate". These actions are intended to address the fundamental problems with China's macroeconomic structure and financial system, where the demand for loans has fallen off recently.

(With inputs from Bloomberg)

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