China’s GDP troubles point to need for bolder reform

China’s property crisis is back in global headlines for all the wrong reasons as Asia’s biggest economy goes wobbly.

The nation’s property boom was among the engines that turned China into an international powerhouse. Now, a years-long housing downturn is presenting Xi Jinping with arguably the biggest challenge of his decade-plus as Chinese leader.

Data for May show that government stimulus efforts to date aren’t gaining the traction Xi’s inner circle had hoped. New homes sales fell roughly 4% last month year on year after a 3% decline in April. It’s the worst run for the sector in nearly 10 years. Property investment is down 10% since the start of the year compared to the January-May period a year ago.

“This data further indicates that the property sector will remain a headwind on growth this year,” says Lynn Song, chief Greater China economist at ING Bank, adding that they should “ring some alarm bells” in Beijing.

All this shines a brighter-than-ever spotlight on the Third Plenum meeting slated to take place this month. This confab occurs every five years to discuss big-picture reform plans.

Originally scheduled for October 2023, the event was delayed amid external economic uncertainty. Yet the meeting is an ideal opportunity for Xi to regain the reformist momentum – and to detail moves to end the property crisis.

At the moment, says Fitch Ratings economist Brian Coulton, “domestic demand has weakened in China as the property market collapse worsens and private consumption growth remains anemic. But fiscal policy is being loosened and exports have rebounded, helping real GDP. Deflationary pressures are, however, widespread.”

Even the engines that are propelling China at the moment require an asterisk.

It’s unclear