1/6 Major Chinese banks are expected to offer just under 1% of China's GDP in credit to property developers. This should help limit the liquidity component of the crisis they face. ft.com/content/f7ff56…

2/6 It is important to remember however that while the liquidity clampdown in 2020-21 was the trigger for the real estate crisis, it wasn't the cause.

3/6 The cause was decades of out-of-control property-sector growth that left China with a too-large property sector delivering more new floorspace than the country could reasonably absorb, surging property-related debt, and the highest real estate prices in the world.

4/6 That means the policies designed to limit the liquidity component of the crisis may help slow the pace of contraction, but they won't resolve the underlying problem. The best they can do, although unlikely, is temporarily reignite the property bubble.

5/6 But this doesn't mean this is a bad idea. From an economic point of view it would be best to resolve the property crisis as quickly as possible, but for social and political stability it makes sense to slow what has so far been a brutal adjustment to a more manageable pace.

6/6 In the end, however, if Chinese households don't return to the bad old days of frenzied property purchasing, rising prices and soaring debt, the property sector must continue to be a major drag on economic activity, government finances, and household savings.