Although China's recent real estate stimulus measures are a positive development for the economy, Goldman Sachs analysts warn that risks remain in the sector and signs of oversupply are emerging in Chinese manufacturing.
Goldman Sachs analysts state that despite strong manufacturing and exports, stable household consumption, and improving inflation, the world's second-largest economy is still on track to achieve its 2024 goal of 5% GDP growth.
However, the real estate market remains "very weak," and despite the recent measures being positive, the industry has yet to see immediate signs of improvement.
In May, Beijing announced further easing of home-buying restrictions and instructed local governments to begin purchasing the surplus housing inventory.
Goldman Sachs analysts point out that the fundamentals of the real estate market remain weak and highlighted several challenges for Beijing in implementing new stimulus measures. They stated that the newly announced financing measures by the government are far from enough to offset the ongoing market decline.
The implementation of inventory reduction policies also requires meticulous adjustments in pricing, and the recovery of the real estate market largely depends on household consumption behavior.
Increasing Issues of Manufacturing Surplus
Goldman Sachs analysts also noted that China's industrial and manufacturing sectors are starting to show signs of oversupply.
“In almost every industrial sector, there is a situation of rising output and falling prices, indicating an oversupply,” said Goldman Sachs analysts.
They pointed out that the recent increase in trade tariffs by the U.S. might have little actual impact on Chinese exports, and China's dominant position in global manufacturing and enormous trade surplus makes its trade partners “uneasy.” Chinese exports are expected to remain strong in the short term.
“However, in the medium term, as Chinese exports continue to gain shares in overseas markets... we expect China's trade surplus and global trade imbalance to further intensify, and the opposition from trade partners may increase,” said Goldman Sachs analysts.
Over the past three months, the Chinese stock market performed well driven by new stimulus measures. But in recent trading sessions, the stock market has fallen sharply from its 2024 highs due to doubts about policy implementation and trade frictions with China.
