China’s economic weakness sparks calls for more stimulus

China’s economy took a hit last month from the current housing market slump and sporadic outbreaks of covid, prompting economists to warn that recent easing measures may not be enough to stabilize growth.

Both residential property sales and new home acreage started by real estate developers fell about 20% from a year earlier, slowing the pace of overall investment spending in the economy. Retail sales growth weakened to 3.9% in November as people stayed home from new outbreaks of the virus.

The data highlights the challenge Beijing faces in its attempt to stabilize the world’s second largest economy without giving up its campaign to reduce the level of indebtedness in the vast real estate sector. The emergence of the omicron variant of the coronavirus is an added threat to the economy as China tightens restrictions to deal with outbreaks.

Beijing recently shifted its focus to stabilizing growth, with the central bank easing monetary policy and the Communist Party ordering more fiscal spending in early 2022. Economists say more stimulus measures may be necessary.

“Demand on the investment side has been extremely weak and we need to see more easing measures,” said Helen Qiao, chief economist for Greater China at BofA Global Research, in an interview on Bloomberg TV. Current policies “are not aggressive enough to overcome all this downward pressure,” he added.

China’s policy shift contrasts with that of the United States, where the Federal Reserve is set to accelerate the pace of reducing asset purchases on Wednesday in anticipation of the first interest rate hike since 2018. Those responsible for that country’s monetary policy is trying to curb the highest inflation in almost 40 years, while in China, the rebound in consumer prices has been relatively mild.

Industrial production increased 3.8% from the previous year, a slight rebound from October due to robust production of electronics and pharmaceuticals. But the real estate market is also weighing on the industry, with production of sector-related staples such as steel and cement falling about 20% year-on-year in November.

Beijing has instructed banks to speed up mortgage lending and has indicated some relaxation of controls on the housing market to support a “reasonable” demand for real estate. However, officials last week took the basic stance that “houses are for living in, not speculating,” suggesting they are not planning any large-scale relaxation of restrictions on financing from developers like China Evergrande Group. .

In some cities, “the downward pressure on the housing market has increased,” Fu Linghui, a spokesman for the National Statistics Office, told reporters. “Consumption limitations derived from sporadic virus outbreaks persist, especially consumption in person.”

With the real estate sector still under tight controls, economists expect increased investment in government infrastructure to boost growth. Although Beijing has been encouraging local governments to issue bonds to finance new projects, that has yet to translate into higher spending.

Investment in infrastructure fell 4.6% in November from a year earlier, a deeper contraction than in October, according to estimates by Goldman Sachs Group Inc.

The weakening in retail sales surprised analysts, who were expecting a boost from the annual “Singles Day” online shopping festival. Spending in the restaurant and hospitality sector fell in November year-on-year, while auto sales fell for the fifth consecutive month.

China has faced persistent outbreaks of the delta variant and this week recorded the first cases of the more contagious omicron variant, increasing pressure on authorities to implement local closures.