Shenzhen leads the way as China turns to property investment frenzy to boost growth

Property investment has surged across cities in China, especially across the border from Hong Kong in Shenzhen, even though the broad economy is still struggling amid coronavirus pandemic, a trend that runs against Beijing's intention of channelling more funds into farms and factories instead of office towers.

Investment into real estate development in Shenzhen surged 17.0 per cent from a year ago in the January-May period, accelerating from a rise of 11.6 per cent in the first four months of the year, according to the data released by the city's statistics bureau last week.

The double-digit growth sharply contrasted a fall of 11.9 per cent in non-property investment during the same period.

The city's retail sales also shrank 16.5 per cent, while the local industrial output contracted 5.6 per cent and its exports also declined 8.3 per cent.

In Shanghai, property investment expanded 3.7 per cent in the first five months of the year, reversing a fall of 2.9 per cent in the January-April period, according to local government data.

As many as 22 out of 31 provinces have reported property investment growth in the January-May period amid a new round of property investment frenzy in the world's second largest economy as China's central bank has eased credit supply.

In the first four months of the year, only nine mainland provinces reported growth in property investment, according to a report from the 21st Century Business Herald this week.

The Chinese government is encouraging its banks to lend more to the real economy, particularly private and small businesses, while financial regulators have vowed to crack down on speculators who borrow money from banks to invest in property.

However, as China's manufacturers are struggling to make profits, banks are often reluctant to lend to businesses.

Meanwhile, as fiscal revenue slump amid the economic slowdown, local authorities are rushing to sell land and boost real estate transactions, which could immediately provide a boost.

Fiscal revenues from land sales turned positive in the first five months of the year, rising 0.9 per cent from a year earlier, reversing a drop of 4.5 per cent in the January-April period, according to the Ministry of Finance.

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Overall property investment in China in May jumped 8.4 per cent, according to calculation by Zhongtai Securities.

Vice-Premier Liu He, the top economic aide to President Xi Jinping, cited the property market as a sign of economic recovery in a written speech delivered to a forum in Shanghai last week, meaning for now, Beijing is expected to tolerate the property investment boom as it could help growth.

Hu Yifan, chief China economist at UBS Global Wealth Management, said this week that Beijing may refrain from any property tightening throughout 2020.

Lu Ting, chief China economist at Nomura, said the better-than-expected levels of property investment were one of the reasons for the Japanese bank to raise its forecast for China's economic growth rate in the second quarter to 2.6 per cent from 1.2 per cent.

But Lu added in a note on Friday that Beijing still appears reluctant to launch a new round of easing in the property market.

Peng Wensheng, chief economist at China International Capital Corporation, also said this week that the country should be alert to the risk of triggering another round of property investment with credit expansion during the economic recovery.

"It is quenching thirst with poison using the property to keep the economy stable, as it may be helpful in the short term, but will cause the imbalance of the entire economic development in the future," Peng said.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.