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Prof. Zhao Bo: Get Real Estate and Consumption Up and Running

Feb 29-2024   



Currently China seeing its economic structure going through a rapid transition phase. Consumption is superseding investment as the most important driver of economic growth, while real estate, the dominant investment over the last several decades, is confronted with unprecedented transitional challenges, said Prof. Zhao Bo of the NSD in a media interview.

 

He set out the relationships between real estate and macro-economy by outlining the former’s impact on the government, households, enterprises and macro-economy. A high-leveraged housing market carries a number of risks: a plunge in prices would cause households to incur more debts than the collateral value of their houses; it might also lead to realty firms sliding into insolvency and breach of contracts. The current round of real estate adjustments, which began in 2016 and was accelerated by the Three Red Lines policy and aggravated by the pandemic, have magnified the de-leveraging effects and caused realty firms’ financing to plummet. Despite measures to buoy up the firms, Prof. Zhao called for prompt re-calibration of real estate polices, proper implementation of relief policies, and equal treatment for state-owned and private enterprises. Referring to the improved performances of realty firms in the US and the UK after the sub-prime mortgage crisis, Prof. Zhao emphasized the importance of supporting the growth of quality micro-entities.

 

Two things should be factored in as the real estate industry moved forward, he said. One is housing inventory. Attention should be paid to actual and effective demand, he said. The government can purchase or rent housing stock from real estate firms and allocate them to low-income residents, rather than building flats for them in difficult-to-access areas. Secondly, urbanization and ageing will cause intrinsic changes to the real estate industry. Prof. Zhao said that cities with net population inflow should be granted more land supply, while those with a contracting population should be treated otherwise. He also believed that people will care more about housing quality.

 

As the return on investment comes down, Prof. Zhao advised moderately increasing consumption so that current and future generations can benefit from the economic growth. To stimulate consumption, the government should prioritize increasing funding for social welfare and education, which will enhance households’ confidence in spending, said Prof. Zhao.

 

He also pointed out that the consumption structure will undergo transitions. As per capita income rises, consumers will have higher demand for services such as health care, education, accommodation, and catering, and lower demand for agricultural and manufactured products. At the same time, he predicted that spending on manufacturer-facing services, like logistics and software development, will continue to have a higher share in the service industry.

Prof. Zhao Bo: Get Real Estate and Consumption Up and Running

Feb 29-2024   



Currently China seeing its economic structure going through a rapid transition phase. Consumption is superseding investment as the most important driver of economic growth, while real estate, the dominant investment over the last several decades, is confronted with unprecedented transitional challenges, said Prof. Zhao Bo of the NSD in a media interview.

 

He set out the relationships between real estate and macro-economy by outlining the former’s impact on the government, households, enterprises and macro-economy. A high-leveraged housing market carries a number of risks: a plunge in prices would cause households to incur more debts than the collateral value of their houses; it might also lead to realty firms sliding into insolvency and breach of contracts. The current round of real estate adjustments, which began in 2016 and was accelerated by the Three Red Lines policy and aggravated by the pandemic, have magnified the de-leveraging effects and caused realty firms’ financing to plummet. Despite measures to buoy up the firms, Prof. Zhao called for prompt re-calibration of real estate polices, proper implementation of relief policies, and equal treatment for state-owned and private enterprises. Referring to the improved performances of realty firms in the US and the UK after the sub-prime mortgage crisis, Prof. Zhao emphasized the importance of supporting the growth of quality micro-entities.

 

Two things should be factored in as the real estate industry moved forward, he said. One is housing inventory. Attention should be paid to actual and effective demand, he said. The government can purchase or rent housing stock from real estate firms and allocate them to low-income residents, rather than building flats for them in difficult-to-access areas. Secondly, urbanization and ageing will cause intrinsic changes to the real estate industry. Prof. Zhao said that cities with net population inflow should be granted more land supply, while those with a contracting population should be treated otherwise. He also believed that people will care more about housing quality.

 

As the return on investment comes down, Prof. Zhao advised moderately increasing consumption so that current and future generations can benefit from the economic growth. To stimulate consumption, the government should prioritize increasing funding for social welfare and education, which will enhance households’ confidence in spending, said Prof. Zhao.

 

He also pointed out that the consumption structure will undergo transitions. As per capita income rises, consumers will have higher demand for services such as health care, education, accommodation, and catering, and lower demand for agricultural and manufactured products. At the same time, he predicted that spending on manufacturer-facing services, like logistics and software development, will continue to have a higher share in the service industry.