Chinese central government regulators are implying a “soft landing” is in store for the Chinese property and financial markets – amid slow economic growth and external scepticism – as economic and stimulus measures aiming to attract more long-term investors to return to the markets take hold.

China’s real estate sector – which, according to an AXA analysis, accounts for 20% to 30% of China’s GDP – has struggled for almost three years, dragging down the country’s economic growth. And, after the central government having introduced a series of measures to stabilize the property market, some positive results have been observed since September this year.

Increasing confidence

“We have established a coordination mechanism for urban real estate financing with the Ministry of Housing and Urban-Rural Development, and have introduced policies, such as lifting the restrictions on property purchases, removing sale restrictions and lowering down-payment ratios, which have improved market confidence,” says Li Yunze, minister of the National Financial Regulatory Administration ( NFRA ), speaking at the Third Global Financial Leaders’ Investment Summit in Hong Kong on Tuesday.

“In October of this year, the transaction volume of newly built commercial housing nationwide stopped declining and began to recover, while the transaction volume of second-hand homes has seen year-on-year growth for seven consecutive months,” Li adds. “The real estate development prosperity index has also risen for six consecutive months.”

In addition, the People’s Bank of China ( PBoC ) has been lowering deposit and loan interest rates to stimulate consumption and the real estate market. Since the end of September 2024, the PBoC has reduced the reserve requirement ratio by 0.5 percentage points, providing about 1 trillion yuan in long-term liquidity to the financial market.

The interest rate for the seven-day reverse repurchase operations in the open market was lowered by 0.2 percentage points, from the previous 1.7% to 1.5%. And the medium-term lending facility rate was reduced by about 0.3 percentage points, and the loan prime rate for October was cut by 0.25 percentage points.

This series of reserve ratio cuts and interest rate reductions, Li notes, has eased corporate financing and household credit costs, fostering investment and consumption.

“By the end of October, the interest rates on the vast majority of existing mortgages had been adjusted downward in bulk, with the average mortgage rate falling by about 0.5 percentage points,” says Zhu Hexin, deputy governor of the PBoC and administrator of the State Administration of Foreign Exchange. “This is expected to reduce annual interest payments for households by around 150 billion yuan, benefiting about 50 million families.”

Debt relief

In addition, Chinese local governments are burdened by a significant amount of hidden debt, as local government financing vehicles ( LGFVs ) have invested heavily in infrastructure and property projects. The International Monetary Fund estimates that total debts incurred through LGFVs in China totalled 60 trillion yuan ( US$8.3 trillion ) by the end of 2023, or 47.6% of GDP.

The Chinese central government is actively supporting efforts to mitigate local government debt risks. On November 8, the Ministry of Finance announced an increase of 6 trillion yuan in the local government debt quota, which will be used to swap existing implicit debt.

These debt-relief policies aim to ease the pressure on local governments. Financial institutions are actively engaging in debt restructuring, extensions and swaps, working to steadily reduce the scale of outstanding debt and facilitate the transformation of local financing platforms.

Re-risking

“As of the end of the third quarter of 2024, the total assets of China’s mainland financial sector amounted to approximately 490 trillion yuan,” NFRA’s Li points out. “The banking and insurance sectors rank first and second globally in terms of scale, with overall stable operations and manageable risks.

“The total provisions and capital of the banking sector amount to around 50 trillion yuan, and the comprehensive solvency ratio of insurance companies is 196%. Key performance indicators are within healthy ranges, especially with the capital adequacy ratio of national banks nearing 16% and the provision coverage ratio exceeding 240%, making them well-equipped to handle various risks and challenges.

“Meanwhile, reforms aimed at de-risking small and medium-sized financial institutions are underway, with each province assigned specific reform plans. Reforms of rural credit cooperatives and village banks are progressing steadily.”

Emerging industries

China will continue to focus on strategic emerging industries, Li emphasizes, including those related to energy-saving and environmental protection, next-generation information technology, biotechnology industries, high-end equipment manufacturing, new energy, new materials and new energy vehicles.

Currently, nearly 2,700 A-share listed companies are in strategic emerging industries, out of a total of more than 5,000 listed companies in the country. Since the beginning of 2024, there have been around 3,000 mergers and acquisitions across the market, with a focus on emerging industries, according to Wu Qing, chairman of the China Securities Regulatory Commission, who disclosed this during the summit.

“We are urging listed companies to improve transparency and corporate governance, and encouraging them to continuously reward investors through methods such as stock buybacks,” Wu shares. “As of the end of October, A-share listed companies have announced mid-year cash dividends totalling 644 billion yuan, and 1,360 new buyback plans have been disclosed, both setting record highs in terms of number and amount.”

Reforms

Wu also emphasizes the importance of accelerating reforms on the investment front, promoting the entry of long-term capital into the market and facilitating the inflow of funds from social security, insurance and wealth management.

“We are steadily reducing public offering funds fees, vigorously developing equity funds, especially replacement investments,” Wu points out. “The scale of equity ETFs [exchange-traded funds] has already surpassed the 2-trillion and 3-trillion-yuan thresholds this year, and the market now has 230 million individual investors. We are strengthening market supervision and cracking down on financial fraud by listed companies.”