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Major dip in China’s property market; It's finally happening.
Topic Started: 20 Aug 2014, 08:46 PM (1,464 Views)
lulldapull
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Major dip in China’s property market
By Nick Beams
20 August 2014

China’s property market is experiencing its biggest slump since records began to be collected in 2005, giving rise to concerns that if not halted it could cause significant problems, both for the financial system and the broader economy.

The National Bureau of Statistics reported that home prices fell in 64 of the 70 cities surveyed in July from their levels a month earlier, sending a tremor through financial circles. As recently as April, prices were falling in only 10 of the surveyed cities, and in major centres they were up by nearly 20 percent. After three straight months of declines, however, home prices are only up by 2.5 percent for the past year, according to calculations by Reuters.

Other figures show that residential property sales fell by almost 18 percent in July from a year ago, while developers’ holdings of unsold properties increased by 25 percent over the same period.

The research director at Centaline Property Research, Liu Yuan, told the Australian Financial Review: “I think it is the worst slump we have ever seen. The market is not very good, as sellers need to offer big discounts to get a deal done.”

If it continues, the property market slide could bankrupt financial companies that have invested heavily in real estate, even threatening the banks that often stand behind them.

Commenting on the figures to the London-based Financial Times, Stephen Green, head of macro research at Standard Chartered in Hong Kong, said: “The next six months are make or break for China’s property market. The stresses leading to defaults among financial trust companies and lower tier developers are growing.”

Daniel Kowalczyk, the senior economist at Credit Agricole in Hong Kong, used stronger language. In an e-mailed note he said official and private data pointed to “a steep correction in residential real estate prices whose depth begins to match that in the Lehman crisis. We expect new measures to stimulate the economy in a targeted way to be announced in the near term.”

The property market data followed figures published last week showing that aggregate credit in China increased by only 273 billion renminbi in July, the lowest level since the start of the global financial crisis in October 2008, and only 18 percent of the level that had been expected. This trend could accelerate if financial companies decide that the property boom is over and it is time to pull back.

Such a move would have a major impact on the broader Chinese economy. Last year the property sector contributed 15 percent to the country’s gross domestic product.

For the past six years, the Chinese economy has been sustained by an infrastructure and real estate boom promoted by government stimulus measures and a rapid expansion of credit. Fearful of the consequences of a bursting bubble, the government has been trying to pull in the reins.

However tighter credit policies threaten the solvency of weaker investments, raising the possibility of a snowballing effect through the financial system.

Speaking to the Australian Broadcasting Corporation’s “World Today” program on Monday, Columbia University professor Patrick Chovanec warned of “systemic risks” in the Chinese financial system.

“They announced all these reforms last year but what they found is that the moment they introduced real economic risk into the system … these risks come to a head and they’re afraid of what might happen and so they pull back from reform,” he said.

When it was put to him that with a growth rate expected to be above 7 percent, the Chinese economy was still “relatively healthy,” Chovanec replied: “Healthy is the key word. No, it’s not healthy because … a lot of the growth is coming from an investment boom that really has long passed its sell by date.”

Chovanec also cast doubt on whether the 7 percent growth rate was accurate, noting that in the first half of the year the amount of freight transported by rail in China declined, a phenomenon not normally seen in a growing economy. Some important sectors of the economy, he said, were “actually in contraction.”

The mounting problems in the Chinese economy have been underscored by figures released by the Ministry of Commerce showing that foreign direct investment in July was down by 17 percent from the levels of a year ago.

In its latest review of the Chinese economy, published last month, the International Monetary Fund (IMF) started with an upbeat tone, stating that growth was expected to be in line with the official target of around 7.5 percent.

Yet the main body of the assessment pointed to the increased risks, with the word “vulnerabilities” used three times in the space of a two-page press release.

The IMF noted that heavy reliance on capital spending and credit expansion had provided a lift to the global economy but that now “declining efficiency of investment, a significant build-up of debt and environmental costs are threatening growth prospects.”

The IMF said financial vulnerabilities had “risen to the point that containing them is a priority” and a broad-based stimulus to the economy should only be undertaken if there were a risk of the growth rate falling significantly below the official target.

A significant slowdown in the Chinese economy, either sparked by, or leading to, a financial crisis, will have major implications for the world economy, and especially for countries such as Australia that have become increasingly dependent on the Chinese market.

The growing nervousness in Australian ruling circles over Chinese economic trends was reflected in the rush by political and business leaders to denounce an anti-China outburst on Monday evening by billionaire businessman Clive Palmer, the leader of the Palmer United Party, which effectively holds the balance of power in the Australian Senate.

Devoting an editorial to the subject, today’s Australian Financial Review noted that if Chinese housing still looked “rocky” in six months it was hard to see how the economy could continue its modest recovery. China, the editorial continued, “contains more risk of shocks for Australia for some time” and was “no longer the guarantor of uninterrupted growth.”

http://www.wsws.org/en/articles/2014/08/20/chin-a20.html
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goldbug
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I doubt there is a place left on the planet (aside from iceland) that isn't struggling financially at the moment. China! All we ever heard out of that place was centrally planned lies about how well it was doing. I never believed the half of it. How can you trust communists? People who drive over protestors with tanks, abandon their baby daughters in the street because sons are regarded as superior.

I read an article just the other day about a 35 year old chinese woman who went into hospital with abdominal pains and xrays showed 40 odd pins and needles had been inserted into her as a baby because her fuc*ed in the head chinese parents were trying to make her into a boy. A lot of them still believe crap like that, and they're working in factories making our electric toasters and mobile phones.

I guess that what ICBM's are for?
Shadow was hopelessly wrong about the Gold Bull Market.
What else is he wrong about?
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newjez
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goldbug
20 Aug 2014, 09:05 PM
I doubt there is a place left on the planet (aside from iceland) that isn't struggling financially at the moment. China! All we ever heard out of that place was centrally planned lies about how well it was doing. I never believed the half of it. How can you trust communists? People who drive over protestors with tanks, abandon their baby daughters in the street because sons are regarded as superior.

I read an article just the other day about a 35 year old chinese woman who went into hospital with abdominal pains and xrays showed 40 odd pins and needles had been inserted into her as a baby because her fuc*ed in the head chinese parents were trying to make her into a boy. A lot of them still believe crap like that, and they're working in factories making our electric toasters and mobile phones.

I guess that what ICBM's are for?
I thought they stuck the pins in the head to kill them??
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
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lulldapull
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So gents this is the steepest drop in 64 of the 70 cities surveyed, since records began back in 2005
Edited by lulldapull, 20 Aug 2014, 10:56 PM.
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miw
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lulldapull
20 Aug 2014, 10:54 PM
So gents this is the steepest drop in 64 of the 70 cities surveyed, since records began back in 2005
Steepest drop in what?
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
AREPS™
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Ned Flanders
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miw
20 Aug 2014, 11:02 PM
Steepest drop in what?
Two words: 温州
------------------------------
" ... which is that all-too-familiar dynamic in Irish life where people tell lies, cover them up and create all sorts of collateral damage, sometimes spread out over decades, and never take responsibility."
- Alan Glynn
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SittingOnDeFence
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miw
20 Aug 2014, 11:02 PM
Steepest drop in what?
Whats you take on the article - you generally talk sense on China...
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van
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That's the thing, property prices have to keep going up or the economy explodes.

Never look why it is like that thou.
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miw
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SittingOnDeFence
20 Aug 2014, 11:19 PM
Whats you take on the article - you generally talk sense on China...
It is a pretty stupid article. Some of the commentary is true but taken out of context, some of it is just plain out of date or wrong.

I am at a bit of a loss to work out what it is the biggest slump in since 2005, because the article quite deliberately does not tell us what has "slumped". Assuming it is not a complete fabrication, it might be in numbers of new apartments sold? It certainly isn't in prices. Prices are still up on a year ago, and they have dropped by about 1% over the last 3 months. In the aftermath of the GFC they dropped by 20%. I am by no means bullish about Chinese real estate. I think I have said that many times. But I am also rather surprised at how prices are holding up. Maybe it is the number of cities where prices have dropped. Certainly the weakness or whatever you want to call it is widespread - it is possible that prices have never dropped in 64 cities at the same time before.

The discussion about the big finance companies turning off the tap on resi development is old hat. That tap got turned off on residential 10-12 months ago. Construction projects have not been started for a number of other reasons as well. Just ask Massive about that.

Things have been very slow the past couple of months, but that is hardly unique. There have often been short-term stops in the market. It is very volatile. So I can't agree that it has "started". It might well "start". I wouldn't be terribly surprised given the sentiment around risk-taking I am seeing. But as of now it is just flat. On the other side of the coin, exports seem to be rising again. The people I know all seem to be getting called by headhunters on a regular basis and if you can fog a mirror you seem to be able to get a job.

But you could hardly expect to find balanced and informed economic or financial comment on The World Socialist Web Site published by International Committee of the Fourth International (ICFI), could you? Even their axes have axes to grind.
Edited by miw, 21 Aug 2014, 12:22 AM.
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
AREPS™
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Foxy
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Zero is coming...

I hope it is not promoted to a General dip.
Peter


Thinks could get bleak.
https://www.youtube.com/watch?v=5x0JQuIoBcE
http://www.afr.com/content/dam/images/g/n/2/1/u/8/image.imgtype.afrArticleInline.620x0.png/1456285515560.png
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