This morning has brought an update for my main economic theme for China.
New home prices fell 0.4 per cent month on month on average across 70 cities, according to data from the National Bureau of Statistics (NBS) on Monday. The decline eased slightly from a 0.5 per cent fall in October, but it was among the steepest in more than a year.
Prices slipped 2.8 per cent year on year in November, compared with a 2.6 per cent drop in October.
Only 11 out of the 70 cities registered month-on-month gains, compared with six in October. ( South China Morning Post)
The first step here is that the boom that was supposed to support consumption via Wealth Effects has long gone and been replaced by a bust. As the air comes out of the ball it will be reducing consumption in a policy failure. In fact as the South China Morning Post points out much of this is via changes in official policy.
China’s real estate sector, which contributed to about a quarter of the country’s gross domestic product at its peak, has been on a downward spiral since late 2020, when Beijing implemented the “three red lines” campaign that tightened financing for developers in an effort to cool a red-hot market.
I suppose they wish they could U-Turn again on this issue and in fact they have been trying it,
Authorities have rolled out a series of measures to stem the fall, but to little effect. Local governments at different levels have issued more than 500 supportive measures this year, with top cities like Beijing and Shanghai scrapping most buying restrictions introduced during the boom years to curb soaring prices. ( SCMP)
They are even trying open mouth operations.
“The central economic work conference explicitly prioritised stabilising the property market, signalling that current policies to steady home prices and market conditions need to be stepped up and deliver results as soon as possible,” said Li Yujia, chief researcher at the Guangdong Housing Policy Research Center, a government-linked think tank.
The reality is more falls in house prices including existing ones.
On the secondary housing market, prices in November fell by the most in more than a year. They dropped 0.7 per cent month on month, the highest in 14 months, and 5.7 per cent year on year.
Tier-one cities saw the steepest monthly drop at 1.1 per cent, accelerating from 1 per cent the previous month. ( SCMP)
As we look back around a decade there was the period of interest in the China ghost cities. Imagine what they must be like now….
Commercial Property
The headline act was this back on October 4th 2021 as we noted.
Shares of China Evergrande Group, the world’s most indebted property developer, and its property management arm were suspended on Monday in Hong Kong.
Various other Zombies have hit the buffers since and now we have another.
>Dec 15 (Reuters) – China Vanke made a renewed effort to muster bondholder backing for an onshore debt repayment due this week and avoid a default after the state-backed developer’s plan was rejected, rekindling concerns about the nation’s crisis-hit property sector.
Vanke will hold a second meeting to determine the fate of a 2 billion yuan ($283.56 million) note payment, a filing to the National Association of Financial Market Institutional Investors showed on Monday.
The problem as regular readers will be aware is that once this starts they will always be back for more and investors find themselves operating in ever decreasing circles.
Vanke’s yuan bond due January 2028 ended down 26% on Monday, while another onshore bond due May 2028 dropped 11%. Shares of Vanke in Shenzhen and Hong Kong lost around 3% and 5%, respectively, on the day. ( Reuters)
The latest news is that they are trying to extend the grace period to 30 days in an example of kicking that poor battered can into the future. That will give investors time to decide whether they want to lose some money now or more money in the future.
But the underlying theme is of a downwards spiral where lower house prices weaken the property companies which weakens house prices and repeat.
Retail Sales
Actually we have here a possible example of central banking theory actually working for once. Just not in a good way.
In November, the total retail sales of consumer goods reached 4,389.8 billion yuan, up by 1.3 percent year on year, or down by 0.42 percent month on month. ( National Bureau of Statistics)
So we have wealth effects leading to a decline in monthly retail sales. Actually more realistic is that we have seen a brake applied which has slowed the annual growth rate to what is a very low level for China. The issue has obviously touched something of a raw nerve.
Sales of basic living goods and certain upgraded goods enjoyed fast growth……Specifically, the online retail sales of physical goods were 11,819.3 billion yuan, up by 5.7 percent, accounting for 25.9 percent of the total retail sales of consumer goods. In the first eleven months, the retail sales of services grew by 5.4 percent year on year, 0.1 percentage points faster than the growth of the first ten months. Specifically, the retail sales of cultural, sports and leisure services, communication information services, tourism consultation and rental services, and transportation services grew fast.
If everything is surging as the detail provided implies why is growth so slow overall and how did we get a monthly fall? We can safely assume that the areas we do not get told about did badly. But whilst retail sales are only part of consumption we see that the mythical rebalancing is just that mythical.
Inflation
I am one of those who welcomes lower inflation as opposed to forever having to keep paying more. But in the light of the numbers above consumer inflation becomes more nuanced.
In November, the consumer price index (CPI) went up by 0.7 percent year on year, 0.5 percentage points higher than the year-on-year growth rate of the previous month, or down by 0.1 percent month on month. ( National Bureau of Statistics)
My home country the UK would be in much better shape if it had inflation numbers like this and one area of particular trouble for us meat seems much better there too.
the price for pork went down by 15.0 percent
But the nuance is that low inflation also suggests weak consumption trends.
Production disappoints
Anywhere else these numbers would be good but not for China.
In November, the total value added of the industrial enterprises above the designated size grew by 4.8 percent year on year, or 0.44 percent month on month. (NBS)
Comment
The economic slowing in the Chinese numbers above reminds me of this I wrote on June 9th.
But if we return to the Chinese economy where is the boost to consumption? Or to put it another way China looks set to try to export even more whilst desperately trying to find away to raise house prices.
What did we all ever do before raising house prices became the main economic gain in town?
So far so bad from their point of view. The next factor is something we looked at only a week ago about the US $1 trillion trade surplus. This morning we were told this on that front.
In November, the total value of imports and exports of goods was 3,898.7 billion yuan, up by 4.1 percent year on year, 4.0 percentage points faster than that of last month. The total value of exports was 2,345.6 billion yuan, up by 5.7 percent; and the total value of imports was 1,553.1 billion yuan, up by 1.7 percent. ( NBS)
China is going to be pushing even harder for more exports and thus there will be more trade wars. Another facet of this is that this story was sung about by The Vapors.
I’m turning JapaneseI think I’m turning JapaneseI really think soTurning JapaneseI think I’m turning JapaneseI really think so
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