An important conference attended by China’s new leadership indicates 2013 will be more of the same: no massive stimulus but no reforms, either. Instead, they will continue to oversee growth hinged on expansionary monetary policy, shadow banking, property price rises, and infrastructure investments. Read more
Capital Economics has is pouring cold water on the notion of a recovery in the Chinese property construction sector, despite house prices appearing to bottom out around the middle of this year. Already? Just a few weeks ago we were writing about a thorough argument from Stephen Green of Standard Chartered early this month presented a thorough argument that previously sky-high inventories of unsold apartments were shrinking. Green and colleagues suggested that with falling new starts and stronger sales, it was even possible that inventories could become too low in the second half of 2013, at least in the biggest cities.
Now, we’re not quite so sure… Read more
Remember Chinese property? How there was a boom in apartment building that amounted to some 10 per cent of GDP, and now there are gazillions of investment apartments sitting empty, and local governments got really hooked on the revenues from land sales, and it all fueled the development of weird and dodgy securitisations which offered a tempting alternative to letting one’s savings lose value in a deposit account? Read more
Something is up with China’s steel production. It reached record levels in March, driving up expectations of rising coking coal and iron ore prices. As the FT and Reuters have reported, there are accounts of both thermal coal and iron ore shipments being deferred or even defaulted on, and prices of both commodities have fallen 12 per cent since the beginning of April. To an extent, China’s steel production growth has also slowed: April’s production only increased 1.9 per cent compared to a year earlier, versus March’s rate of 2.5 per cent compared to a year previous.
So why is China still producing steel at relatively high rates? There are a few theories. Wood Mackenzie says that even very thin margins are enough to keep privately-owned steel mills operating, while the state-owned operators had no incentives to stop production. The research house also says about 58 per cent of Chinese steel is typically used for construction. Read more
Asian markets were mostly in positive territory early on Monday, which was widely attributed to comments by Chinese premier Wen Jiabao on Sunday, emphasising the need for more support amid signs that growth is sputtering.
From Bloomberg: Read more
The adjustment in property markets is welcome, but given the significance of the sector in the overall economy, continued vigilance will be required to contain negative spillover effects.
That’s from the World Bank’s new China quarterly report, which downgrades 2012 GDP growth to 8.2 per cent from 8.4 per cent. Read more
Among the generally slow Chinese economic data for January and February, there was a surprisingly strong showing for property-related investment.
Societe Generale’s Wei Yao writes that growth in fixed-asset investment for the property sector grew strongly in January-February. Most other types of fixed-asset investment slowed significantly, and other property indicators also showed poor growth rates or even contraction. So why the upturn in property FAI? Read more
China’s bank regulator has ordered lenders to roll over more than $800bn of local government loans coming due in the next three years as it bids to avoid a wave of defaults hitting the system, the FT reports. Officials had moved towards a “one-off” maturity extension in recent months but are unlikely to give all local governments, which loaded up on debt under China’s 2009 stimulus, the same benefit of the doubt. Meanwhile an industrial city in eastern China has confused observers by seeming to ease, then tighten, controls on property lending within a weekend, the WSJ reports. Wuhu’s authorities announced subsidies for home-owners, only to backtrack after consultation with “every level of society”.
Remember all that stuff we’ve been saying about Chinese property? How it’s really, really important? We’re hardly the only ones, either.
Bloomberg View’s Michael McDonough has done another of his handy charts on the latest city-by-city sales price data. The green is nearly all gone in December: Read more
China’s fourth quarter GDP figures are having a bit of a Rashomon effect on pundits.
From Reuters: Read more
Just so as we are not accused of being gloomsterish on China, here is the latest from JPMorgan’s Jing Ulrich.
While risks of external shocks abound, she sees a more nuanced response from the central government than in 2008-09. There’s already been some selective easing, and reserve requirement ratios for banks are, of course, expected to be further reduced this year. And there are some opportunities amongst the latest policy signals: Read more
In the steady drip feed of anecdotes about China’s property market, Patrick Chovanec’s blog post earlier this month rounding up a series of first-hand, second-hand and media reports made for some fascinating reading. Chovanec now has a story on Foreign Affairs which builds on this theme, including this summary of why it’s such a big deal:
Understanding how this came to pass means parsing the host of distortions and mind games that characterize China’s real estate market. Residential real estate construction now accounts for nearly ten percent of the country’s total GDP — four percentage points higher than it did at the peak of the U.S. housing bubble in 2005. Bullish analysts have long argued that large-scale urbanization and rapidly rising incomes warrant such an extraordinary boom. Read more
It seems that investors in Chinese shares are not feeling too optimistic of late:
… into a hole, that is.
So, China’s Golden Week was not as great for property sales as it usually is. Sales were down 32 per cent on the previous year in 20 major cities, Bloomberg tells us. Which has prompted a big fall for some property developers and financials, dragging down the Shanghai Composite and Hang Seng. Read more
Wonder why everyone is so scared about a possible Chinese slowdown? Here’s a stat for you: China is now forecast to contribute 28 per cent and 30 per cent of global growth in 2011 and 2012, respectively.
That’s an updated prediction from a concerned Citigroup note entitled “Is China all that’s left?”, and takes into account recent downward revisions to growth in the US and Europe. It’s an awful lot of weight to carry for a country that is showing several signs of homegrown stress. Read more
Standard & Poor’s says Chinese property developers face tough times, Dow Jones reports. Most developers it rates could absorb a 10 per cent fall in property sales next year, but many would struggle with a fall of 30 per cent. The report warned that “the hard times aren’t over yet” as China’s monetary tightening looked set to continue and alternative funding channel, such as the offshore bond markets, might not be available because of heightened credit risks and turmoil in global capital markets. The firm in June lowered its outlook for the Chinese property market to negative.
This China decoupling thing was never really going to take off, was it?
From Bloomberg: Read more
Chinese regulators have told banks to tighten lending for real estate on concern credit risks will increase as the impact of government curbs deepens in the next three to five months, a person familiar with the matter told Bloomberg. The China Banking Regulatory Commission told lenders in July not to extend the maturity of loans to developers, not to grant new credit to help developers repay maturing debt and to set significantly higher standards on loans for commercial properties than residential, the person said. Meanwhile Xinhua says that Chinese property developers saw their inventories surge in the first half of the year. Wind Information, a a Shanghai-based financial data provider, said inventories of 20 listed real estate developers rose 46.3 per cent, year-on-year, to Rmb317.76bn.
Standard & Poor’s, the rating agency, downgraded its outlook for the entire Chinese real estate development sector from stable to negative on Wednesday, citing deteriorating credit conditions and the likelihood of a decline in property transaction volumes and prices, reports the FT. The downgrade comes as analysts warn of a potential impending “price war” among property developers starved of cash by Beijing’s efforts to rein in the red-hot residential property sector.
Standard & Poor’s cut its outlook on Chinese property developers to “negative” from “stable”, Bloomberg reports. Tighter credit and increasing government restrictions could see a downgrade in the next six months to 12 months, the ratings agency said, if property sales begin to slow and developers cut prices to meet funding needs. The People’s Bank of China on Tuesday raised capital ratio requirements for the ninth time since October. Moody’s on Tuesday also lowered its outlook on the sector to negative, citing liquidity concerns for 10 developers amid the spectre of sharp sales falls.
Chinese regulators have relaxed the extra reserve requirements they had imposed on some banks in 2010 to stop too much lending, says Reuters.
So goodbye, crazy Chinese lending growth? Read more
Chinese regulators have rowed back additional reserve requirements for some banks that had been imposed on top of mandatory reserves, suggesting some success in battling bad loans, two sources have told Reuters. Chinese banks extended RMB 600bn of loans last month, versus predictions of RMB 650bn, according to data out last week. Chinese property developers are also confident that squeezes on the flow of credit, and measures to stop speculation, will not harm their business. China Vanke, the biggest developer by market value, has seen 2010 profits beat analyst estimates, Bloomberg says. Fitch is still warning that China has a two-thirds chance of a banking crisis by mid-2013, Bloomberg adds.
Sixty-eight of 70 Chinese cities have recorded home price increases from one year ago, suggesting that government measures to curb speculation have had little effect, Bloomberg reports. Home prices in Beijing rose 6.8 per cent, while in ten cities, prices increased by more than ten per cent. Regulations including larger downpayments and increased property taxes appear to have done more to reduce transactions than deflate prices, said analysts. The data and methodology of China’s property price index has been widely criticised in the past for understating problems — and sadly this year’s version is little different, despite promised changes, says the WSJ.
With bank credit being tightened across the country it seems clear that China’s property developers increasingly desire to fund via the bond markets.
Some, though, have been increasing bond sales more than others. Read more
They are in the middle of a rather large bubble. They are feeling the pinch of tightened bank lending.
They are Chinese property developers. Read more
Revealed alongside (massaged?) Chinese inflation data on Tuesday: sharply lower bank lending growth.
Which — given that China’s lending restrictions may well be more effective than rate hikes at halting liquidity — was quite an odd drop all round, actually. Read more
With private Chinese media getting more restrained by the day in their financial coverage – it might pay to read between the lines of what state outlets are saying.
To wit, this bit of fluff from China Daily: Read more
When it comes to asking what the China risk is, there’s a distinct air of ‘whose line is it anyway?’ regarding the cause of the country’s property bubble.
Is it more the fault of households buying second (third, etc.) homes? Read more
Standard Chartered’s analysts have been doing a good job of monitoring the Chinese real-estate conundrum — i.e. will prices collapse or will they just keep booming forever?
In a note issued on Thursday, though, they look more closely at the triggers that might eventually prompt a correction. Read more