China's Housing Market Drags Down Growth

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The following is a contribution to the ChinAfrica magazine produced by The Beijing Axis.

Amid a sustaining decrease in the value of the housing market, several Chinese cities have abolished household registration restrictions on property investment. Chengdu, the hub of development in southwest China, has notably proposed and then revoked its offer of a 3-percent housing loan subsidy for first-time buyers. Amid fears of building modern "ghost towns," Chinese municipalities began to enact restrictions on property investment from as early as 2009. 

The property market is considered one of the most profitable and stable investments, thus this policy was difficult for many hopeful homebuyers. However, Chinese policymakers are now afraid of the repercussions of the rapid decrease in activity in China's property development sector. The slump in the property market has been strong enough to bring the China Services Index to a record low. Some analysts suggest that this may indicate that the government's stimulus measures are failing to gain traction outside of manufacturing. 

Manufacturing up 

Meeting analyst expectations, China's consumer price index, a main indicator of inflation, increased by 2.3 percent year on year (yoy) in July. This increase, in part due to the increase in food prices, falls a comfortable distance from the government's targeted limit on inflation for the year - 3.5 percent. China's manufacturing purchasing managers' index, an indicator of the development of the manufacturing sector, increased to an 18-month high of 51.7, the fastest expansion in more than two years, which likely suggests that the government's stimulus plan is, indeed, making an impact on the manufacturing sector. 

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Export and retail figures steady 

Trade and retail figures provide valuable insight into the status of the transition of China's economy from an export-oriented manufacturer to a service-oriented economy, whose growth is based on domestic consumption. Growth in exports from China has continued to increase, coming in at 14.5-percent yoy in July. Import growth, on the other hand, has been lackluster in recent months, dropping by 1.6 percent yoy in July. Retail growth has continued its steady development, falling slightly under estimates of 12.4 percent at 12.2-percent yoy growth in July.

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