Why China hasn't bailed out Vanke: Economist on property sector outlook

Core Viewpoint - The Chinese property sector is experiencing a significant decline, with sales and investment decreasing at an accelerating rate, leading to a pessimistic outlook for the second half of the year despite initial hopes for recovery [1][3][4] Property Sector Performance - Property prices in tier one cities have dropped by 30%, while in tier two cities, the decline is between 40% to 50% or more [5] - The government announced a 300 billion yuan bailout fund to address unsold inventories, but this amount is insufficient compared to the sector's annual sales of approximately 7 trillion to 8 trillion yuan [5][6] - The ongoing issues in the property sector have persisted for nearly five years, with many developers facing financial difficulties and investigations due to past aggressive expansion and illicit activities [4][7] Economic Dichotomy - There is a noticeable divide in the Chinese economy, with high-end manufacturing and AI sectors performing well and gaining market share, while the property sector continues to struggle [2][3] - The property sector's contribution to overall economic growth is diminishing, leading to a perception that its weaknesses can be overlooked [3][4] Market Sentiment and Reactions - Investors appear to be more comfortable with the ongoing property market issues, possibly due to a belief that policymakers will prevent a complete collapse that would affect other economic sectors [4][6] - The current market sentiment reflects a shift towards equities, as investors may be reallocating capital away from the struggling property sector [8] Future Outlook - The potential for a government bailout remains uncertain, as there is a concern about creating moral hazards and the sheer scale of financial support needed to effectively stabilize the property sector [6][7] - The experience of Japan's prolonged economic stagnation is cited as a possible parallel for China's property sector challenges, suggesting a drawn-out recovery process [7]