In mid-May the People’s Bank of China appealed to the Chinese government to incorporate into monetary policy special consideration for first-time home buyers. The idea was to grow China’s property market through the introduction of new buyers. These first-time buyers would get a toe-hold in property through easing credit policies.

From this submission the Chinese government began to relax its grip on the market, allowing banks to extend credit beyond the usual predefined regulatory provisions.

Since that time the property market in China has slowed, with prices falling on average 0.2% a month.

People's Bank of ChinaThis has profound economic consequences for China as well as the global economy as a whole. Fully 15% of China’s economic output stems from the housing market. No less than 40 other domestic industries rely upon it for their livelihood. Many of these industries, in turn, source materials and technology from overseas. Any downturn in the Chinese property market will have profound knock-on effects throughout the global economy.

Analysts are hoping the slump in property prices is about to bottom out. Investors are watching the housing figures very carefully, as any further losses could drag the wider Chinese economy down with it.

Credit Agricole is holding to the Chinese economy keeping to its 7.3% growth rate in the second quarter. They doubt whether the government will have to cut its interest rate, though that option is still on the table should they wish to stimulate the economy.

As mentioned in previous reports, the People’s Bank of China has already taken steps to stimulate the economy by extending its reserve requirement ratio (RRR). And these stimulus measures appear to be having the desired effect.

Property appears to be the only weak spot in the Chinese economy.

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