China highly exposed to ‘rapid’ housing downturn, warns IMF

CHINA’S economy is highly exposed to shocks after the “rapid” downturn in its housing market, the International Monetary Fund (IMF) has warned.

Housing investment in China is likely to fall by between 30pc and 60pc compared with 2022 levels, the IMF said in a report.

As a result, it said economic growth will slump from 5.4pc in 2023 to just 3.4pc by 2028, as its population and workforce shrinks.

Years of “excessive” investment in infrastructure and housing means the world’s second largest economy is now highly exposed to property market shocks, just as it grapples with weak productivity and an ageing population, the IMF said.

Starts on new homes in China have plunged by more than 60pc compared with pre-pandemic levels.

Henry Hoyle and Sonali Jain-Chandra, who authored the report, said this drop was “a historically rapid pace only seen in the largest housing busts in cross-country experience in the last three decades.”

William Hurst, a professor at the University of Cambridge, added: “This isn’t a blip. It is going to have to be a longterm deflation of a very long-inflated bubble. It’s really a structural issue more than a cyclical one. There’s been a strong over reliance on land use sales and property development, at least since 2007. That has got worse and worse. Local governments are heavily dependent for their revenue on land and a tremendous amount of household wealth is in property.”

China’s stock markets plunged to a fresh five-year low earlier this week as state support measures failed to convince investors that Xi Jinping can overcome the country’s economic headwinds.

President Xi has stepped in to bolster China’s ailing property sector with measures such as expanding access to loans for developers, but the IMF said support needs to go further.

China needs to wind up “unviable” property developers, and help those with better prospects to repair their balance sheets, the IMF said.

The country’s property downturn began at the end of 2021 with the collapse of Evergrande, which has more than $300bn (£237bn) in debt and was this week served with a liquidation order by a Hong Kong court.

Evergrande’s demise sent a shock through the property sector, triggering a wave of smaller defaults and a major slump in transactions.

The problems have since spread to another property giant, Country Garden, which was once China’s largest developer and now has around $200bn in liabilities. It defaulted on a bond payment last autumn.