China’s house prices “still too high”

China housing.pngEarly last year, China’s leadership faced the prospect of social unrest, as 23 million people lost their jobs as Western demand dropped for China’s exports. The government bought itself time to deal with this problem by throwing money at it – $1.4trn of bank lending, and $580bn of stimulus.

Earlier this year, the government then announced measures to cool the housing bubble that these policies had created. But last week, the People’s Daily noted that : “With house prices still high and not falling, the results of the policies are still quite far from what ordinary people expect.” And according to China Daily, “regulating the property market remains a daunting task in spite of “initial progress” the country has made in cooling excessive prices“.

Responding to these pressures, China’s chief economic planner, Zhang Ping, accepted that “current housing prices in some large and medium-sized cities are still too high.” And he promised that the government would “further implement the measures meant to curb excessive gains in housing prices, and resolutely restrain speculative property investment.”

Thus it seems clear that China is set on slowing its economy to a more sustainable pace. As China Daily added the main task now is to deflate the asset bubble, particularly in the urban housing market, and to avoid heavy inflation, which requires a gradual slowdown“.

Soberingly, it warned “there is a genuine likelihood that global market demand for Chinese manufactured goods can never be fully regained. A greater part of this economy will also have to find more customers in the domestic service sector. That will probably take a much longer, if not painful, process.”

This new policy has important implications for the global chemical industry. Demand has been boosted over the past 18 months by China’s efforts to reflate its economy. We probably shouldn’t rely on the stimulus effects from this to continue for much longer.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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