Sat, April 28, 2012
Business > Economy

Social housing expected to drive China economic growth

2012-04-28 02:42:51 GMT2012-04-28 10:42:51(Beijing Time)  Business China

A statue in front of a building in construction in Beijing. Chinese officials are counting on a massive social housing scheme to help boost the economy. (Photo/Xinhua)

Chinese officials are counting on a massive social housing scheme to help boost the economy, which is expected to slow from the 9.2-percent growth recorded last year to just 8 percent in 2012.

As investments starts to slow down and external demand remains lackluster, China’s economic growth is expected to cool this year, said Han Weisen, China chief economist at the World Bank.

Social housing, or low-income, affordable housing, is meant to give the growing numbers of low-income workers and pensioners a place to live.

Low-income housing construction will act as a "sedative" for the broader housing market, Vice Premier Li Keqiang said last year.

In addition, as growth slows and real estate values slump, China hopes the large-scale social housing construction will help boost its overall economy, as these projects will boost the steel, cement, copper, aluminum and a range of other industries.

"While the government is trying to manage housing prices down, it does not want the economy to have a hard landing," Wang Tao, an economist at UBS Securities, told Bloomberg.

China's real estate market has been slowing since September. Home sales dropped 18 percent in the first quarter, while housing prices in more than half of the top 70 cities fell in March, the sixth straight month of declines for Beijing, Shanghai, Guangzhou and Shenzhen.

In 2011 real estate made up 9 percent of GDP, estimates Nicholas Lardy, senior fellow at the Peterson Institute for International Economics, far higher than the 6 percent reached in the U.S. at its peak.

“The whole growth trajectory of China has been driven by housing investment,” Lardy said. “If you wanted to create a bubble, you would have done exactly what China did.”

Chinese local governments are expected to shore up efforts to fund their respective social housing targets, which nationwide will total some 36 million units by 2015 and require 5 trillion yuan.

In March, the government announced it would increase central funding for low-income housing by 23 percent to 212 billion yuan this year.

But local governments are still the main force behind the gigantic projects, and normally they have to rely on land sales (which are now falling) for capital.

The value of China's total land sales reached 2.9 trillion yuan in the past year, but only 1.6 percent was dedicated to social housing construction, according to data from the Ministry of Finance.

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