context: Current economic challenges in China are not so much related to inadequate economic policies. Rather, it is the emphasis on political ambitions that creates mounting uncertainties and depresses market activities. Various economic instruments may only alleviate the problem on the margins, as the real issues stem from political institutions.

Experts discussed H2 macroeconomic trends at a 17 August China Macroeconomic Forum, specifically

  • Liu Yuanchun 刘元春 Shanghai University of Finance and Economics maintained four reasons contributed to the declining economic indicators in July: inadequate domestic demand, restrictions on power usage due to high temperatures, adjustments in the real estate sector, and weak private investment; these factors continue to worsen in August
  • July economic data already suggests a V-shaped recovery is unlikely in H2, says Xing Ziqiang 邢自强 Morgan Stanley China, who estimates the Q3 GDP growth will be 2.5-3 percent
    • relapse of COVID-19 controls during winter may impact growth by 2 percentage points
    • weak real estate market performance may drag down growth by 3-4 percentage points
    • slowing exports may deliver a 1 percentage point shock to the economy
  • Lu Ting 陆挺 Nomura Securities says the pandemic is still not over, and macroeconomic policy faces not the risk of over- but of understimulating; the real estate market may also spiral downwards

All three experts caution that the spillover effect of the stagnant real estate market should be prevented

  • Liu points out that readjustment of the real estate sector is longer and more challenging than expected, and the decline is having a serious impact on the economy
  • weak expectations in real estate, says Xing, have a non-linear impact on downstream sectors like construction, household appliances and services. He advocates strengthened policy support to prevent contagion, which will heighten non-performing loans and credit risks
  • Lu says the short-term solution is ensuring timely delivery of apartments, while the medium-to-long-term depends on increased land supply in large cities with population inflow and on relaxing purchasing restrictions