China's Innovative Approach to Resolving the Property Crisis Sparks Market Enthusiasm
The recent surge in Chinese stocks follows an announcement from officials in a key city outlining a strategy to purchase unsold homes, signaling a potentially effective solution to the nation's property crisis. Analysts view this move as a promising trial run for a larger-scale resolution.
Sign up for CNN’s Meanwhile in China newsletter to learn about the country’s rise and its global impact.
Chinese stocks saw a significant increase on Thursday following the announcement by officials in a major city to purchase unsold homes. This move is seen as a potential test for a larger solution to China’s property crisis.
Hong Kong’s Hang Seng Index closed up 1.6%, reaching its highest level since August. The index has surged almost 30% from its low in January, officially entering a bull market recently.
Leading the gains were property developers, with an average increase of 3.1%.
Longfor Group, the ninth largest homebuilder in China, saw an 11% surge in its stock, making it the top performer on the Hang Seng Index.
Sunshine 100 China Holdings, a developer based in Beijing, experienced a remarkable 127% increase, becoming the best performer on the broader market.
The surge in stock prices followed an announcement by a district in the megacity of Hangzhou that the government would purchase unsold residential homes from the market and transform them into affordable housing.
The Chinese government is reportedly considering a proposal to address the issue of unsold homes by having local governments purchase millions of these properties. This strategy has been referred to as a "major solution" by Chinese media for the troubled property market.
In line with this, the National Development and Reform Commission, the top economic planner in the country, has promised to support affordable housing initiatives and to explore new approaches for the real estate sector.
“We think this is a largely symbolic move to show support for the sector with a ‘national team’ for the housing market,” said Citi analysts.
A pedestrian passes by the Hong Kong Stock Exchange electronic screen in Hong Kong, Friday, June 2, 2023. Asian stock markets followed Wall Street higher on Friday ahead of an update on the U.S. jobs market after Federal Reserve officials indicated they might skip another interest rate hike this month. (AP Photo/Louise Delmotte)
A pedestrian walks past the electronic screen of the Hong Kong Stock Exchange in Hong Kong on Friday, June 2, 2023. Asian stock markets rose following the positive trend on Wall Street. This was in anticipation of an upcoming report on the U.S. job market, especially after Federal Reserve officials suggested that they may not raise interest rates again this month. (AP Photo/Louise Delmotte)
Related article
Hong Kong stocks are back from the dead. Here’s why
Speculation has been circulating recently about a possible bailout plan in China. Reports emerged last month suggesting that Beijing is looking to follow Japan's example of acquiring unfinished housing units to convert them into affordable housing for sale or rent across the country.
According to analysts at ING Group, this proposed plan is a significant step up from current pilot initiatives. It is seen as a major support measure that could help offset the impact of new US tariffs on Chinese exports, thereby easing negative effects on the stock market.
But fund managers are exercising caution.
"We are cautiously optimistic about the 'government-led buying on unsold units' as it is still being implemented in more cities," said Jeff Zhang, an equity analyst at Morningstar. "Funding issues could continue to be a major concern."
Beijing has been facing difficulties in managing the long-standing property crisis in China, which is negatively impacting the economy and leading to protests from homebuyers nationwide.
In recent weeks, several major cities such as Hangzhou, Xi'an, and Chengdu have started easing restrictions on home purchases.
Last month, the Politburo of China's Communist Party pledged to address the housing crisis by considering new strategies, such as implementing tailored policies for each city to decrease housing inventory.
Investors have been increasingly reinvesting in Chinese stocks since last month, marking a turnaround from a prolonged period of selling that had caused key indexes in Hong Kong and Shanghai to plummet to their lowest levels in years, resulting in a substantial loss of value for listed companies.
Nasdaq Golden China Index, which tracks Chinese companies listed on Wall Street, has gained 11% since the start of April. It hit the highest level in more than seven months on Monday.
Editor's P/S:
The recent surge in Chinese stocks, particularly in the property sector, highlights the government's efforts to address the country's long-standing property crisis. The announcement by Hangzhou officials to purchase unsold homes for affordable housing has sparked optimism among investors, signaling a potential shift in strategy. However, analysts remain cautious, citing concerns over funding and the broader impact of new US tariffs on Chinese exports.
Beijing's willingness to consider new approaches, such as tailored policies for each city and government-led purchases of unsold units, demonstrates its commitment to tackling the crisis. These measures could provide a much-needed boost to the real estate sector, which has been a drag on the economy and a source of social unrest. However, the success of these initiatives will depend on the government's ability to secure funding and navigate the complex challenges facing the property market.
