A looming correction in the Chinese property market poses the biggest threat to China’s economic growth, which may show more evident signs of slowdown next quarter due to an imbalanced supply and demand, Hong Kong-based UBS chief economist Wang Tao (王濤) said yesterday.
“The imminent corrections would have more to do with an overestimated demand from urbanization rather than a volley of tightening measures,” Wang told a teleconference.
The urbanization trend has fostered a real demand of 3 million apartment units, whereas the builders and developers have put 11 million on the market, steeply raising inventory in cities across the country, she said.
This surplus supply is pushing down home transactions and prices, but Wang refrained from speculating on the pace, saying China’s relatively low household debt ratio may help avert an outbreak similar to that of the US subprime crisis prior to the global financial storm in 2008.
However, if new construction volumes contract by 20 percent or more, China’s economy may shed 2.5 percentage points, Wang said.
She predicted a 7.3 percent GDP growth for China this year, lower than the government’s estimate at 7.5 percent.
The growth forecast suggests a 7 percent increase next quarter, slowing from an estimate of 7.2 percent this quarter and 7.5 percent last quarter, as downside risks grow more evident, she said.
An increase of asset allocation tools will contribute to the corrections, as Chinese investors seek to diversify their portfolio and lower investment risks, Wang said.
Beijing is likely to address the downside risks by strengthening construction on infrastructure facilities spanning transport, environmental protection, health care and pension fund issues, she said.
The People’s Bank of China could lend a helping hand by cutting interest rates and the required reserve ratio, she said.
“Big companies and local governments can issue bonds to meet cash demand, thereby sparing credit for small and medium enterprises,” Wang said.
China has room, though limited, to weaken yuan to support exports that may pick up in the second half with the advent of high season for technology devices in the West, she said.
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