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China is tapping the brakes on property prices and cutting the availability of mortgage loans to spur households to spend instead of repaying debt, as policymakers try to ignite private consumption and stimulate the pandemic-stricken economy.
China's household leverage ratio had soared to a record by the end of June, prodded by a jump in mortgages as the government allowed real estate to support the economy. Indeed, the mortgage burden for Chinese households has grown so huge that it hobbles private consumption, analysts say, and residential incomes plunged into negative territory this year.
Since August, policymakers have tried to stimulate spending under a so-called "dual circulation" strategy President Xi computer science vs computer programming espoused this year, analysts say. But balancing consumption with the property market could be tricky to pull off. A precipitous fall in property prices would crush consumer sentiment, the opposite of what policymakers want to achieve.
"China's property market is more and more crowding out spending ability," said Wang Jingwen, senior analyst with China Minsheng Bank. "Those who have to tighten their belts to pay down payments or mortgages are the ones with the most marginal propensity to consume, a demographic critical to China's shift to a consumption-led economy."
The Chinese Academy of Social Sciences (CASS) said in a report last year that China's property market has not made a net contribution to the economy since 2018, when homes became so expensive that they left little spending cash for households.
China's central bank said last year that every 1 percentage point increase in ratio of household debt to the country's gross domestic product (GDP) would cut retail sales growth by 0.3 percentage point. The ratio rose to 59.7% as of end-June, from 55.8% at the end of 2019, CASS data showed.
At the same time, household income has plummeted, down 1.3% in the first half of this year, compared with a 5.8% increase in 2019. Data will not immediately show whether slowing mortgage growth is giving households more financial freedom to spend, unless incomes suddenly jump. Still, in August, for the first time this year, retail sales grew, up 0.5% year-on-year.
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