China house prices fall further as economic gloom deepens

Worries that China’s economy may be slowing further intensified on Thursday as data showed home prices fell for the fourth straight month, adding to expectations that Beijing will need to do more to stimulate activity.

For now, policy easing is likely to come in the form of help to the most vulnerable sectors, rather than more aggressive steps such as cutting interest rates, but authorities are ready to step in with bolder measures if unemployment rises, policy insiders told Reuters.

China’s central bank reportedly stepped in this week to avert any further shocks to the world’s second-largest economy.

The People’s Bank of China offered to lend $81 billion to big banks to reduce the risk of a credit crunch and a jump in interest rates heading into the long “Golden Week” holidays in early October, when demand for cash typically soars.

Despite the move, short-term lending rates dipped only briefly on Thursday, and traders said borrowing costs will start to rise again soon unless the PBOC continues to pump money into the system, highlighting growing nervousness in the market.

Lower rates could arrest the cooldown in China’s once red-hot property market, where fizzling growth is increasingly dragging on the broader economy, sapping demand for housing-related products from appliances and furniture to cement and steel.

Average new home prices across China fell 1.1 per cent in August from July, accelerating from last month’s 0.9 per cent drop, according to a Reuters weighted home price index calculated from official figures.

Price falls spread to a record number of cities, and further declines are expected as cash-hungry developers cut asking prices and offer bigger discounts to attract buyers.

Some economists think the slide will persist well into next year, citing huge inventories of unsold homes.Four consecutive months of declines in home prices has left China’s housing market close to wiping out its gains over the last year, a trend that could further hurt consumer confidence. The property market accounts for roughly 15 per cent of the economy. “The softness in real estate investment will remain one of the major drags on economic growth,” said Zhu Haibin, an economist at JPMorgan.

China’s economy has had a bumpy ride this year. A bounce in growth in the second quarter was cut short in July, and data suggest the cooldown may have deepened since.

Stimulus measures announced earlier in the year already appear to be losing their punch.

Growth in factory output slid to a six-year low in August and import demand fell unexpectedly for the second month.

In addition to government moves to accelerate spending, the PBOC has taken several steps this year to ensure ample liquidity and encourage increasingly risk-averse banks to continue lending at reasonable rates. Many banks still prefer to lend to state-owned firms, starving private companies of capital.