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These developments in the property market prompted Chinese Premier Wen Jiabao to comment over the weekend that “currently, the property market adjustment is still at a crucial stage and we must unswervingly continue the work and make the fight against speculative property investment demand a long-term policy.”
However, BofA China strategist David Cui thinks that based on remarks made by the People’s Daily, a Chinese newspaper seen as the Communist Party’s mouthpiece, additional measures to curb the property market could come sooner than expected, which in turn could mean a hard landing for the Chinese economy.
Cui writes in a note to clients today:
While the market has been focusing on Premier Wen’s weekend comment on property policies, we consider an editorial by the People’s Daily on July 4th more telling. The editorial, which adopted a harsher tone than the Premier, has called for more actions by the government to dampen investment property demand. Given the Daily’s editorial often represents the Party’s line, we expect another round of property crackdown within months (unless the momentum in the physical market stalls unexpectedly). If this happens, a hard landing in the economy (with perhaps a half-year lag) will be a high probability event by our assessment.
Here are the relevant comments from the China Daily editorial, via Reuters:
“The risk of a home price rebound is quickly accumulating which deserves high attention,” the People’s Daily said. “Usually, the trend in home prices will reverse after three to six straight months of turnaround in property transactions.”
“While firming up their stance, relevant government departments also need to issue more measures,” the newspaper said.
“It is something (the government) must do to keep its promise to the people and to restructure economic development,” the paper added.
Cui writes that he expects to see more “harsh tightening measures” to curb the property market sometime in the next six months.
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