China sees no need for big stimulus for property, economy

2014-10-11

(Reuters) - China is watching its property market closely but sees no need for any big stimulus for the sector or the rest of the economy, its vice minister of finance said on Friday.

Zhu Guangyao told a small group of reporters on the sidelines of the World Bank/IMF meetings in Washington that the government considered that the current economic situation in China, including the real-estate market, was "still stable."

While there had been some decline in property prices, this was not seen as a problem, because previously they had been too high and market forces should be allowed to prevail, Zhu said.

He said the government had tried in the past to control volatility in the sector, "but not in a very effective way."

"We watch closely but let the market play the role. We have enough macro-economic tools, but are very cautious about taking any big stimulate programme this time," Zhu said.

"That relates not only to the real-estate market but also the economy as a whole. There’s no (need) for a big stimulus programme. We must let market play the role."

When asked if there was any concern that Chinese banks could be vulnerable to any big property market downturn, Zhu said there was "serious surveillance" of the banking sector and the banks had "a big capital cushion." Their non-performing loans stood at only around 1 percent, he added.

Zhu said a national real-estate tax was part of the government's plan to reform the tax system after the introduction of pilot schemes in Shanghai and Chongqing, and the National People's Congress and the Finance Ministry were jointly working on this.

But Zhu said this would require public hearings and the nationwide system was likely to be different from the initial schemes. He did not elaborate.

Late last month, China cut mortgage rates and downpayment levels for some home buyers for the first time since the 2008 global financial crisis after home prices fell for a fourth consecutive month in August and new construction activity continued to slump.

It was one of its biggest moves this year to boost an economy increasingly threatened by a sagging housing market. The real-estate market accounts for about 15 percent of China's economy, which is the world's second-biggest.

The relaxation of lending rules for home buyers was accompanied by steps to increase financing for cash-strapped developers, who may economists expect may have problems paying their debts if the property downturn persists.

In spite of the move, some analysts have cautioned investors against thinking that the housing market and broader economy could be poised to stage a stunning recovery. A glut of unsold or unoccupied homes and buyers' expectations of further price declines could temper any rebound.

The housing downturn has weighed on already soft demand in China, dampening consumer confidence and slashing demand for related products from home appliances to glass, cement and steel. It also has implications for global prices for copper and iron ore.