As the leaders of over 40 nations attend this weekend's Asia Europe Summit in Beijing, analysts are pointing out that China might be able to save itself but not the world.
Sorting out the property market is regarded as vital as property investment accounts for a tenth of the country's gross domestic product.
The decision to cut the costs of buying, particularly for first time buyers, including reducing mortgage rates, taxes and down payments, simply do not address the core problems, it is feared.
'This is the biggest property rescue package in China's history, but it doesn't touch the two most critical areas that are dragging down the property market; property developers' stressed cash flows and consumers' expectations for further price drops,'' said Tao Dong, chief Asia economist at Credit Suisse in Hong Kong.
China's economic expansion cooled to 9% in the third quarter, the slowest pace in five years, as the global financial crisis dents demand for exports. A slump in property, hurting investment and consumption, is the next big risk, said Tao.
'The new measures, which mainly address first-home buyers, will only save a tiny amount of money for buyers, and as long as expectations remain that prices will fall, the wait-and-see sentiment will prevail,' said Li Wei, an economist at Standard Chartered in Shanghai.
China's official property statistics have failed to capture the scale of declines in prices in many cities this year, according to Li. Property prices rose 3.5% in September from a year earlier, the slowest pace in at least three years, according to the government. But the industry is reporting steeper declines of around 55.5 in Beijing and 38.5% in Shanghai.
The property industry is suffering. Over 50 small and medium real estate firms have cancelled or postponed their recruitment efforts. A large property agent company in Guanzhou says it plans to cut over 600 employees, even some mid-level and senior managers.
Some developers are cutting prices. Vanke, one of the largest in China, said that it had cut prices for new residential units by an average of 10% since October 2007 to revive slumping sales.
But even this may not be enough. 'Prices are still too high for people to afford. The change may help improve sentiment in the short term but is unlikely to lift the property market,' said Liu Bing, a real estate analyst at CSC Securities HK Ltd.
'At the moment China can only save itself and thus be a certain stabilizing factor in Asia,' said Joerg Wuttke, president of the European Chamber of Commerce in China.
'It is impossible for China to help Europe, Japan or the United States out of their troubles. China's economy is still too small for that, despite being the world's fourth largest economy,' he added.
