A first glimmer of hope for China property

Economists already think China’s latest plan to end its property crisis is too little, too late – again.

Yet the creative thinking behind it – essentially, a state-backed apartment-buying spree – is generating hope that Xi Jinping’s team could be on the verge of a breakthrough to tame deflationary risks.

The package announced Friday includes a People’s Bank of China (PBOC) 300 billion yuan ($42 billion) lending facility for enlisted state companies to gorge on finished-but-unsold housing.

“The package does represent a significant evolution in the government’s response to the property crisis,” says Andrew Batson, an analyst at Gavekal Dragonomics. “The solution isn’t here yet but the chances of a solution actually arriving are now much higher.”

Given Friday’s (May 17) powerful rally in Chinese property developer stocks, Batson says, it’s fair to call the plan “an early downpayment on the recent promise of a new approach” to stabilizing a sector that traditionally generates one-fifth of Chinese gross domestic product (GDP).

The announcement struck many observers as a clear response to property sales cratering 28.3% year on year in the January-to-April period. New home prices dropped 0.6% in April month on month, marking the 10th consecutive decline and the biggest since November 2014.

“All this bad news seems to have finally triggered a sense of urgency that’s strong enough to force material action,” analysts at Société Générale said.

Not urgent or big enough, though, many economists and analysts say.

With the stock of unsold homes and empty land at their highest levels in years, construction is slowing sharply while default risks are rising among developers ranging from giant state-owned firms to smaller private builders.