Stable Growth Can't Overly Rely on Stock and Housing Markets
While people are fixing their eyes on the capricious stock market, the housing market receives less attention. Currently, the housing market in first-tier cities is robust or undergoing a turnaround, but most second-tier cities and almost all third- and fourth-tier cities still frown upon their sluggish commercial housing sales.
Being allured by the then lucrative stock trading, hordes of individual investors sold their homes to buy stocks. However, when the stock market began to plunge, few of them cashed in their stocks to invest in the real estate market. Pinning their hopes on the government bailout efforts, many stock investors are not in a hurry to withdraw their money from the stock market.
In the first half of this year, the value-added output of financial service industry registered a year-on-year growth of 17.4 percent, becoming a new growth engine of the economy. In some sense, the stock market has replaced the housing market as a prop to keep the Chinese economy afloat.
Yet, whether the growth is fueled by stock or housing market, it's not what Chinese decision-makers want.
While the macro-economy has not recovered from the negative impact of the sagging housing market, plummeting A-shares in the past month have thrown numerous investors into a panic. Reviewing the previous global economic crises, one can easily find housing or stock bubbles were always the prime culprits.
Since last year, the Chinese Government has launched several rounds of monetary easing policies, which are designed to reduce financing costs and support the agricultural sector, small and micro businesses and the real economy.
The effects of monetary policies can be perceived in the market. Since capital always runs after profits, the stock market has witnessed the largest capital flow. The housing market, though also benefiting from these easy monetary policies, has hardly returned to its prime and seen a much weaker capital flow. Then, how much money has entered the real economy? The capital flow in the stock market indicates that the effects of the easy monetary policies on the real economy have been discounted.
To avoid a stock crash, decision-makers set about stabilizing the market; to prevent the housing market from suffering a hard landing, they stick to macro-regulation. At the same time, continued progress should be made in promoting economic restructuring.
The stubborn diseases harassing China's economy are structural and systematic in nature. Stable economic growth should be based on the solid foundation of the real economy. Therefore, innovation and entrepreneurship are of significant importance, and innovating and reforming the capital market is to better serve the real economy. Both capital and real estate markets shouldn't be taken as the mainstay of China's macro-economy.
To our embarrassment, at present, the stock and housing markets are precisely what contribute most to China's economic growth. Under the "new normal," it's understandable that decision-makers have to care more about the stock and housing markets, which are having a substantial impact on the macro-economy and people's livelihood. Despite that, the two markets need to restore their ordinary state.
As far as the stock market is concerned, 7-percent growth in the first half year is enough to eliminate external anxiety over China's economy. Under such circumstances, measures and policies targeted at stabilizing the stock market should be gradually peeled back.
As far as the housing market is concerned, existing favorable policies should be fully exploited, different management methods should be adopted to tackle different situations, and de-stocking is a major priority. For first-tier cities, overheating in the market needs to be prevented.
The essence of housing regulation lies in land supervision. Authorities need to be cautious about land approval, do a good job in risk control and be prepared to take back land.
Though stable stock and housing markets are indispensable, they can't be the major engines of stable economic growth. The real growth momentum should come from a systematic reform focusing on restructuring.
This is an edited excerpt from an article by Zhang Jingwei, a research fellow with the Charhar Institute, published in National Business Daily
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Copyedited by Kylee McIntyre
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