China is considering a proposal to have local governments across the country buy millions of unsold homes

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China finds itself in a precarious position, caught between a rock and a hard place. To prevent further pressure on the Yuan, authorities have refrained from lowering interest rates. But just when it seemed like they were out of options, reports surfaced that China is considering a drastic move: having local governments buy millions of unsold homes to prop up the struggling real estate market.

Why the urgency? For many Chinese, their main source of wealth is tied to homes, as overseas investing is restricted and local stock markets have plummeted. However, these homes sit amidst a glut that has been pushing down values for nearly three years. Compounding the issue is the fact that the same local governments tasked with this bailout are drowning in debt. Their primary source of income, tied to the real estate market, is now under threat.

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But wait, there’s more. China is also offering more long-term bonds and allowing the budget deficit to grow above 3% – a rarity in itself. It’s a high-stakes gamble, as China needs more debt and lower rates to keep growing, all while desperately clinging to its currency. However, history tells us that currency depreciation is inevitable in the long run.

Enter China’s Swap Connect, a scheme aimed at promoting the opening up of China’s financial market. Launched just over a year ago, it’s now set to take on an even bigger role. With regulators rolling out new measures to enhance the scheme, it’s clear that China is doubling down on its efforts to navigate this financial tightrope.

But amidst all this, a word of caution: beware of derivatives. As China’s financial landscape evolves, so do the risks.

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China Considers Government Buying of Unsold Homes to Save Property Market

China’s Swap Connect further enhanced to promote financial opening up

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