Market Intervention - Morgan Stanley suggests China could implement mortgage subsidies to stimulate its housing market [1] - The estimated annual expenditure for these subsidies is approximately 400 billion yuan [1] Economic Impact - The primary goal of the subsidies is to boost consumer confidence, which has been negatively impacted [1]

Property Market Overview - China's property woes are entering their fifth year, impacting deflation and consumption due to deteriorated household wealth [1] - Previous easing measures in tier one cities like Beijing, Shanghai, and Shenzhen have failed to rekindle interest in the property sector [2][3] - Bloomberg Intelligence estimates hundreds of billions of yuan in negative equity, a trend expected to accelerate into 2026 [5] Policy Response - Authorities are considering new measures, including mortgage subsidies for new homebuyers, income tax rebates for mortgage borrowers, and lowered home transaction costs [2] - More forceful policy support is being called for, with authorities examining different plans [3] - Timing and specifics of these proposals remain unknown, but discussions have been ongoing since the third quarter [4] Financial System Risks - Negative equity is expected to intensify, weighing on buyer confidence and contributing to further home sales decline [6] - Destabilization of the financial system is a paramount concern for authorities as they head into 2026 [7] - A rise in nonperforming loans and households sitting on negative equity due to significant household wealth tied to property (upwards of 60%) will significantly impact the financial system's balance sheets and loan portfolios [9] Upcoming Events - Top policymakers have held closed-door meetings to develop the next five-year plan, likely to be revealed at the National People's Congress (NPC) in March [7] - There is urgency for policies to be released before the NPC meets in early March [8]

Government Intervention & Policy Measures - China is considering new measures to revive its struggling property market, including nationwide mortgage subsidies for first-time homebuyers [1] - Other measures under discussion include raising income tax rebates for mortgage borrowers and lowering housing transaction costs [1] - Plans are to be discussed starting at least in the third quarter, as property sales and prices continue to decline; specific implementation timelines and policies remain uncertain [1] Market Trends & Consumer Behavior - Calls for stronger policy support for the residential property market have grown after earlier measures to lower lending thresholds and ease restrictions on multiple home purchases failed to halt the decline [1] - Chinese consumers remain in a deleveraging phase, impacted by weak income expectations and increased uncertainty from the economic slowdown [1] - Outstanding housing mortgage balances fell to 374 trillion RMB in the second and third quarters, down 3.9% from the peak in early 2023 [1] Banking Sector Challenges - Efforts to lower borrowing costs, including the removal of the nationwide mortgage rate floor for individual homebuyers, have been constrained by the continued deterioration of Chinese banks' profitability and asset quality [1] - Commercial banks' net interest margin had fallen to 1.42% by the end of September, remaining below the 1.8% reasonable profitability threshold for over two years [1]