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Policymakers cannot shrink the real estate sector in isolation:

Residential real estate sits at the heart of the “land finance” development model that has underpinned China’s urbanisation and industrialisation for about twenty years. The decline in property sales has eroded local government land sale revenues.

Infrastructure investment is likely the next domino to fall:

Land sales are unlikely to rebound, so local governments may have to reduce their infrastructure investments soon. Subsidies for industrial firms may also have to be curtailed. The overall drag on growth could be more severe next year.

A systemic financial crisis can probably be avoided:

Even as growth slumps, the financial system can likely continue to function normally if policymakers can generate a modest increase in housing sales, boost bank profitability, and delay the recognition of losses on local government off-balance sheet debts.

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