New Chinese Leadership Keeps Current Recovery Policies, Ups Housing

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china low-cost housing and real estate investment


The fact that the new communist administration’s annual two-day “central economic work conference” wrapped up on Sunday night by everyone agreeing there would be no changes in the outgoing administration’s plans for 2013 may come as no surprise.

But it is of sufficient significance that it moved foreign exchange markets on Monday, as investors marked a vote of confidence in the currencies of supplying countries like Australia.

Apparently, the administration is encouraged by a raft of recent data points all trending to a gradual recovery which points to stronger growth next year than this year’s likely 7.6 percent or so, the worst since 1999.

Lu Ting from Bank America Merrill Lynch is quoted in a Reuters article as saying, “With rebounding GDP growth, rebounding earning growth and low inflation, we think the Chinese economy is now in a sweet spot and can stay in it through the first half of 2013.”

Crucially for the Chinese economy, the government has committed to step up construction of low-cost housing to aid the ongoing migration of farmers to the cities.

With residential real estate tightly restrained, low-cost housing will have a greater relative impact than two to three years ago. Real estate investment has picked up in recent months, however, which may in part be contributing to the recovery of manufacturing.

As Reuters points out, real estate investment accounts directly for about 13 percent of China’s GDP and a fifth of the country’s fixed-asset investment and has an enormous knock-on effect for a large range of other industries.

The party has also pledged to boost public infrastructure spending, although this is likely to be a continuation of current projects rather than the announcement of any new funds of massive projects.

The third plank is to continue striving to boost domestic consumption as the country continues to rebalance away from an over-reliance on exports. No specific mention is made in the article about the exchange rate; this has strengthened significantly over the last two years, but there has been much talk about reversing the move to aid exporters.

Such a move would set off alarm bells among China’s trade partners and, to be fair, is unlikely given the exchange rate’s effectiveness as a tool to promote rebalancing the economy towards domestic consumption.

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