China’s Policy Inflection Point Arrives

Senior Chinese officials have announced significant measures to begin fixing the housing market mess in what I believe is the initial phase of the pragmatic policy course correction we’ve been waiting for.

Vice Premier He Lifeng, joined by top officials at China’s central bank, finance and planning agencies, as well as leaders of major commercial banks, announced on May 17 steps which mark a clear break from the government’s past attitude of downplaying the property market problems and refusing to take action. This is an important change in Xi Jinping’s approach and may signal that changes in other macro policies are also coming.

This is likely the policy inflection point I’ve been expecting for some time. In the May 10 Sinology, I wrote: “There are problems, especially in the property market, and confidence is weak. But, at some point in the near future, I believe Xi Jinping will follow in his predecessors’ footsteps and make the pragmatic course corrections that will revitalize China’s entrepreneurs and consumers.”

The new measures will not, on their own, solve the deep problems in China’s residential property market but I believe they are important first steps, primarily because they reflect a decision by Xi to finally acknowledge the problems—caused largely by his earlier policies—and to publicly take responsibility for fixing them.