China's housing market continues to decline despite aggressive government stimulus measures. Home prices in major cities fell faster in May, reflecting ongoing challenges for the world's second-largest economy.
The Chinese government has increased support for housing and other industries, but recent data show persistent caution among businesses and consumers. Home prices are falling at an accelerating rate, and while fixed-asset investment and industrial production are growing, their momentum has slowed.
China's National Bureau of Statistics reported a 4.3% drop in new-home prices in May compared to the previous year, worse than April's 3.5% decline. Prices in the secondhand home market fell 7.5%, compared to a 6.8% drop in April. Home sales by value tumbled 30.5% in the first five months of this year compared to the same period last year. The recent policy support package has not yet slowed the decline in housing prices.
China's economic activity in May was sluggish, with retail sales rising only 3.7% from a year earlier, and industrial production growth slowing to 5.6% from April's 6.7%. Fixed-asset investment growth decelerated to 3.5% from 3.6%.
The property sector crisis remains a significant challenge. Measures such as local governments buying unsold homes, removing minimum mortgage interest rates, and reducing payments for potential home buyers have not convinced enough buyers.
A major mortgage rate cut is likely needed, as current rates stand at 3-4%, while rental yields are below 2% in major cities. Economist Zhaopeng Xing of ANZ said to WSJ that mortgage rates need to match rental yields for the market to stabilize.
China's efforts to boost growth also include increased investment in manufacturing to reduce reliance on foreign suppliers. However, domestic consumption is not strong enough to absorb the increased production, leading factories to cut prices and seek more overseas buyers. This export push faces resistance as countries impose tariffs and open investigations into Chinese products, citing unfair competition. Beijing argues that these measures are protectionist and that Chinese industries compete fairly on the global stage.
