Has Xi really changed his mind on housing and consumption?

Shuli Ren, Bloomberg

A few recent policy initiatives suggest that China is changing its economic priorities. To halt an unprecedented property downturn, Beijing is asking local governments to buy unsold homes with cheap loans from the central bank. Top bureaucrats have been talking about lifting “still-weak domestic demand” lately, a welcome departure for an administration that believes boosting industrial production is the most effective way to lift the nation out of an economic slump.

Once bitten, twice shy. Did President Xi Jinping really change his mind on the roles of real estate and consumption, skeptical investors have been asking. After all, his mantra that “housing is to be lived in, not speculated on” resulted in ruthless crackdowns from all corners of the bureaucracy. Plus, Xi grew up in the 1960s, when “produce first, live later” was a popular slogan. Back then, China was singularly focused on industrial production, developing its nuclear technology, for instance, while ignoring people’s livelihood. Can a person really change their world views shaped during their formative years?

Xi may be left with no choice. In the first four months of 2024, home sales worsened to only 2.4 trillion yuan ($332 billion), an alarming deterioration from the 2021 peak when annual sales exceeded 16 trillion yuan. For comparison purposes, despite China’s great success in electric vehicles, auto sales came in at just 4.9 trillion yuan last year. There’s simply no alternative sector that can fill the black hole left by real estate — not in the next few years at least.

Xi may also start to realize that without a strong domestic consumer base, China will always be at the mercy of the US. That means his dream of the rejuvenation of the great Chinese nation may never be realized.

Recent economic data shows clearly that China continues to follow business cycles in the West, despite the government’s earnest attempt to diversify. Exports are the saving grace, driven by resilient American consumers and big tech’s AI ambition. Globally, companies started to restock semiconductor parts in November, resulting in improvements in China’s new export orders, especially in Xi’s prized chips.

But exports alone do not make China a superpower. Punitive tariffs in the West are forcing the country’s best companies, such as EV maker BYD Co., to set up factories abroad and minimize their Chinese characteristic so their products can be viewed as made in Europe. How is that helping Xi’s China Dream when entrepreneurs move overseas and don’t want to their goods to be associated with China?

If you are a big buyer, everyone wants to be your friend. An army of happy spenders can be an important hedge and a weapon in the new trade war over high-end manufacturing. Interestingly, Germany, Europe’s biggest EV maker, is against investigating China’s unfair trade practices, even as the US pushes to join forces with the continent. Officials in Berlin are wary of pressing penalties that might incite Beijing to shut out German carmakers such as BMW AG and Volkswagen AG, which have been very successful in China.

None of this is saying that Xi is embracing a consumer-oriented society, where people are free to choose and live how they wish. Rather, in his high-stakes geopolitical chess game, Xi may finally start to find value in his numerous pawns.