Orderly change of gear

In spite of mounting pressure on deomestic house prices since late last year, Chinese policymakers have so far resisted the temptation to introduce a massive stimulus to bolster the cooling real estate sector; and for a good reason.

For anxious domestic property developers, the past month was not a good one. In addition to a radical decline in transactions, the average house price in 100 Chinese cities fell by 0.32 percent in May, the first month-on-month drop since June 2012. Falling prices have also aggravated fears of a property meltdown, which would send shock waves through the world's second-largest economy.

However, strengthened manufacturing and non-manufacturing activities in the past month indicate otherwise. If the transformation of the country's growth model is indeed more important than quarterly or yearly growth numbers, it pays to bear the short-term pain of squeezing housing bubbles while pressing ahead with structural adjustment for the country's long-term gain.

The latest official data show that Chinese factory activity grew at the fastest pace in five months in May. Even better, China's non-manufacturing purchasing managers' index rose to 55.5 from 54.8 in April despite the sub-index for the property sector still remaining below the boom-bust line of 50.

Although they do not necessarily guarantee that the economy will remain on a smooth path to recovery during the rest of the year, the data suggest that the Chinese government's targeted measures to bolster growth are having an impact.

Some people argue more supportive measures are needed to boost the property market. Their assessment of the risks of a disorderly correction of the vast property market, including some panic over falling prices, financial trouble among developers and heavily indebted local governments, may be pertinent. But their prescription of more cheap credit for the once red-hot market would only create more trouble than it could cure.

The soft start of the Chinese economy this year has given rise to speculation that Chinese policymakers would have to resort to inflating the housing bubble again to avoid a hard landing for the overall economy.

Fortunately, the Chinese economy is now showing more signs that it is bottoming out.

It is believed that if Chinese policymakers keep rolling out targeted pro-growth measures, it will be possible for the country to prevent an economic slowdown and advance economic restructuring without making the property sector "too big to fail".