SCIO briefing on China's economy in the first three quarters
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E-mail China.org.cn, October 19, 2016
Reuters:
The central government introduced a raft of regulatory measures in the property market recently. I wonder if this will impact the economic growth. What do you think of the recent downward pressure and the depreciation of the RMB? Why is this happening?
Sheng Laiyun:
I'd like to make a few observations about the impact of property market regulation on economic growth.
First of all, it was timely to issue regulatory measures in major cities around the National Day. Why? We all know that housing prices climbed rapidly in August and September, and so introducing control measures was meant to cool the market. It is also positive for curbing excessive investment in the property sector.
Based on the data available from the first half of this month, we can see that the control measures have paid off. The housing sales in first-tier cities and some second-tier cities are falling, and some cities even saw deceases month-on-month. The heat of the property market is cooling and housing prices have begun to stabilize. Thus it is necessary and effective to introduce these control measures.
Second, we shouldn't overestimate the influence of regulatory measures in the property market on the economy. We need to continue to see what happens next. Why? Because the regulatory measures this time focus on first-tier cities and some second-tier cities, or cities that saw a heated property market; namely, they only apply to a few places. Therefore the impact on the entire country and its economy needs to be seen. Moreover, other cities are still continuing previous policies like destocking. In addition, regulatory measures only target investment and speculation; rigid demands and those who seek better housing conditions are still encouraged. Moreover, regulatory measures are intended to prevent a negative impact on the economy brought by big rises and falls in the property market; in other words, the ultimate goal of regulatory measures is to maintain stable economic growth. Overall, regulatory measures in the property market do not have that much influence on the economy as a whole and we need to see where the measures are headed (before jumping to conclusions now).
Regarding the exchange rate, the exchange rate of the RMB did depreciate recently, but this is due to international factors. The expectations of the US dollar rate hike strengthened recently, the world economy is still unstable, and economic recovery is sluggish -- all of these put some pressure on the RMB. But in the medium to long-term, there is no basis for the yuan to see continued depreciation. First of all, China's economic fundamentals are sound, the economy is more stable, the internal structure of the economy is improving, and the quality of economic growth is improving -- all these prop up a stable yuan. In addition, trade in goods sees considerable surplus, and it remains a surplus even when we take out trade in service. We also have a huge foreign exchange reserve, and the internationalization of the RMB will improve the supply and demand of the yuan on the international market. The yuan joined the SDR basket on October 1, which will create demand for the yuan in countries seeking foreign exchange security and stability. Therefore we do not think there is any basis for the yuan to continue depreciating.
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