In yet another setback for China, the International Monetary Fund (IMF), on February 3, delivered a sharp rebuke of its real estate crisis. IMF termed China’s real estate market an “unresolved crisis” and that Beijing needs to put in more effort to support the sector and end the crisis. IMF commented on the crisis as a part of its annual review of China’s economy, which is bearing the brunt of the Covid-19 pandemic. IMF said, “the slump in the sector has continued, and the need for large-scale restructuring remains.” According to IMF, the world’s second-largest economy expects a 5.2% growth this year. During the press conference, Sonali Jain Chandra, IMF’s mission chief for China, said, “China is still operating below potential.”
Beijing sent a harsh response and denied any crisis and slump in its real estate market. Zhengxin Zhang, China’s representative on IMF’s executive board, said in a statement published with Xuefei Bai, policy advisor at the Fund, “China’s property market has rather been functioning smoothly, and it will be inappropriate to overstate the difficulties in the market.” Beijing also labeled the IMF’s economic growth projection for 2023 as “overly pessimistic.”
Thomas Helbling, deputy director of the IMF’s Asia Pacific Department, said in an interview with CNBC, “If you look at the measures, a lot of them address financing issues for the developers still in relatively good financial health, so that will help. But the problems of the property developers’ facing severe financial difficulties are not yet addressed. The issue of the large stock of unfinished housing more broadly is not yet addressed.”
IMF has not only suggested an increase in funding for the completion of unfinished projects but also promoted the market-based restructuring of troubled property developers to address the slump. The IMF added, “a property tax should be introduced in the longer term to help the sector transform into a more sustainable model. Government spending should be shifted from investment towards targeted support for households, and interest rates should also be lowered.”
A quarter of China’s GDP share goes to the property market, which has stilted growth. This stunted growth has occurred since Beijing cracked down on developers’ high reliance on debt in 2020, combined with Chinese President Xi Jinping’s Zero-Covid policy which observers believe proved to be a disaster for the economy. Covid lockdowns have been believed to worsen the housing crisis as fewer prospective buyers could visit the properties. Moreover, the younger generation avoided big purchases, uncertain of their future. Experts believe that now that the Zero-Covid policy is over, the Chinese government is rushing to revive the property market as the central government has reportedly ordered banks to complete unfinished projects. The Economist states that sales of existing homes also rose by more than 20% in the first ten days of 2023 compared to a month earlier.