China will just about meet its economic growth target of around 5% for this year, although the ongoing property crisis is raising the risk of a miss.
The economy is projected to expand 5% in 2023, according to 78 economists polled by Bloomberg. The projection is a 10 basis point-downgrade from their earlier poll, with analysts citing property as the biggest challenge for the nation.
“The real estate sector will continue to be under mounting pressure despite recent government efforts to support property," said analysts at Poseidon Partner, a Hong Kong-based investment firm. “We expect to see players who racked up debt in the past to continue to suffer."
Economists Chang Shu and Andrej Sokol said the drag from the property slump, fragile sentiment and widespread debt stress in the corporate sector could well knock the economy onto a lower trajectory. They project gross domestic product will expand 5.4% this year.
HSBC Holdings Plc, Morgan Stanley and Citigroup Inc are already predicting growth of under 5% this year, with HSBC cutting its forecast this week to 4.9% from 5.3%.
Data from August suggested some of the drags on the economy may be bottoming out, with the drop in exports easing and official surveys of manufacturing activity edging closer to the line above which indicates expansion.
Credit also grew more than expected, signalling some stability in household demand for mortgages as authorities work to bolster the real estate market.
The upside surprise from those figures has lowered the probability that China misses its official growth target from 32% in July to less than a fifth in August, according to Bloomberg Economics. But there’s still uncertainty, especially when it comes to the housing market.
“Targeted support has yet to filter through more convincingly into the property market data," said Arjen van Dijkhuizen, senior economist at ABN Amro.
The property crisis is by far China’s biggest challenge, according to a separate Bloomberg survey. Seventeen of the 21 economists polled name “real estate" as the top issue. Three mentioned the economic slowdown, while the remaining respondent pointed to a confidence crisis in the nation.
Of the 21 economists, 15 are of the opinion that home purchases will continue falling until at least the beginning of next year.
Former central bank adviser Li Daokui said the property market could take as long as a year to recover and urged Beijing to do more to encourage lending to developers to halt the spread of defaults.
While sales in large cities could return to growth sooner, it may take as much as a year to record “good recovery" in smaller cities, Li told Bloomberg News recently.
“The drag from property has yet to fully abate, while external weakness will continue for some time," HSBC economists including Jing Liu wrote in a research note this week explaining their downgrade.
“To prevent exacerbating structural imbalances, policymakers are refraining from unleashing a ‘sugar rush’ of policy support," they added. “That said, fiscal and monetary support measures continue to be implemented, but will likely need time to have a larger impact."