In the near future, more insight is likely to be obtained concerning the Chinese economy and any assistance offered by the government — particularly in regard to real estate. Yao Yang, Dean of the National School of Development at Peking University, commented to reporters during a press conference on Wednesday that "in about six months, we anticipate the housing market to reach equilibrium." Furthermore, the Chinese Communist Party is due to convene for its Third Plenum in the coming weeks. This meeting, which occurs once in five years, typically revolves around economic matters of a more extended nature.
Over the coming three months, China's economic situation and the level of support from the government, particularly for the essential real estate industry, will become clearer. Since April, the nation's recovery from the coronavirus pandemic has slowed and the property market has taken a downturn, despite many cities lifting bans on buying apartments. At a briefing Wednesday, Yao Yang, dean of the National School of Development at Peking University, said that the authorities will soon relax their restrictions on the supply side of the housing industry. He anticipates that in the next six months the sector will stabilize. China's property sector is responsible for around 25% of the economy, so its troubles have affected consumption and public funds.
Yao anticipates that the central government will permit local governments to borrow more money to reimburse their long-term debts, which he believes can assist in the complete economic revival by mid-2021. Last year, Beijing implemented measures to reduce real estate developers' excessive borrowing habits. The COVID-19 limitations diminished potential homebuyers' demand, consequently depleting a regular source of funds for developers as pre-construction sales are prevalent in China. This caused developers to delay building projects, which further compounded homeowner hesitancy. By late 2022, numerous real estate corporations defaulted on their debts. During the summer, the top leadership started to indicate a shift in stance. Yao commented that the decline of the real estate sector was due to the government's deliberate efforts to adjust the market bubbles. He mentioned that the square meters of space sold this year will most likely be 500 million less than what it was before the enforcement and 200 million meters lower than what is considered appropriate for the industry. Nevertheless, he and other economists generally don't foresee the real estate sector to experience major growth in the future. Wang, the Shanghai-based chief economist at Hang Seng China, predicted that housing market weakness would remain and house prices would decrease in the next few years, albeit not abruptly. Through her research, she identified an unofficial base price for sales of new dwellings across China. She noted that some developers recognize the base price, meaning that they can't provide a discount of 15%. From the Chinese government's perspective, they would like to see a controlled decrease instead of a sudden change, given that a sudden fall in house prices could cause severe social implications considering the large amount of wealth stored in housing by households.
Concerns about the state of China's realty industry linger this week, with debt-ridden Evergrande encountering further liquidity difficulty — along with accounts on Wednesday that its leader was placed under surveillance. "Would a resolution of Evergrande's reorganization have a marked effect? Absolutely," Clifford Lau, who works as a portfolio manager at William Blair, stated in a telephone conversation on Monday. "But would it set off the entire bond market to trades in the high single-digit price, up to 20 cents per dollar? That's a long path that will likely take an extended period of time."
Headlines such as these have created a negative sentiment both in China and among foreign investors. Many observers from overseas, in particular, are perplexed over the Chinese government's economic policies. Foreign companies are now becoming increasingly pessimistic. Yao, director of the China Center for Economic Research, expressed that "when talking about confidence, most businesses want to survive in the current climate. No one is thinking about the next 10 years. This lack of confidence is slowing the economy down and, as a result, people's outlook on the economy has become unoptimistic." Yao, an advocate for cash bonuses to boost consumption, has witnessed certain cities dole out such packages, yet the central government has been reticent about doing so - rather choosing to lower taxes for businesses.
The absence of proper communication is not generating positive sentiment.China's strictly regulated system usually authorizes policy amendments only following summits of top authorities referred to as the Politburo. Those usually take place in late April and late July, in addition to one in December for the purpose of deliberating the following year. potential
Discover more about China from CNBC Pro
China's AI technology is on the rise – particularly in areas with monetizable opportunities.Don't believe the reports of a Chinese slowdown – three Chinese businesses are taking in big profits globally. Goldman Sachs has disclosed its 'favourite' industry within Chinese tech – and two stocks have made it onto its conviction list. HSBC has singled out six 'good value' Chinese tech stocks – one offers over 50% in potential gains.
China's utilization of AI is bringing about potential profits; there is seemingly no decline in the momentum of Chinese enterprises earning significant amounts of money from across the world. Goldman Sachs has revealed the industry it has the most confidence in when it comes to Chinese technology, and they have named two stocks that they consider to be 'conviction list' stocks. HSBC has provided a list of six Chinese tech stocks that hold good value and have suggested that one of them could have more than 50% upside.
In the coming weeks, the Communist Party of China is due to hold its Third Plenum, a five-yearly meeting that normally looks at long-term economic objectives. Robin Xing, Morgan Stanley chief China economist, and his team said in a statement that before/at the Third Plenum this fall, a central government-driven, comprehensive strategy for tackling local debt risks could be presented. These actions could allow the economy to modestly recover from 4Q23 onwards.The National Financial Work Conference, a conclave to address financial issues and risks, has been postponed since it was originally slated for last year. Structure-wise, this is something China has had in place for some time; however, recently, policymakers appear to be less likely to make major pronouncements prior to the issuance of high-level directives.The establishment of new commissions, an arrangement declared in March and expected to be in place by the end of the year, has also seen the Communist Party of China obtaining enhanced supervision of finance and technology.
It's yet to be determined what further steps legislators should take for the economy, considering there's still steady growth. Yao expects that, in the long run, China's GDP should be able to improve by an average of 5.5% annually, which he attributes to the nation's big savings rate and pioneering role in renewable energy, new vehicle technology, and cutting-edge technology. The weekly data gathered by Nomura this month suggested the dip in real estate sales has been subdued. Additionally, retail sales increased more than anticipated in August, while industrial profits rose 17.2% compared to the same month in the previous year. Bruce Pang, chief economist and research head of Greater China at JLL, noted that the profit increment was true regardless of the business size. His words, translated from Mandarin by CNBC, were that a "stable policy" should be implemented, instead of an extreme one. Pang does not look for drastic policy modifications at future meetings, but he expects the central bank to carry on lowering interest rates and natural growth to increase.
Despite some estimates expecting China's growth to slow this year, the official target of around 5% is still close to, or slightly lower than, those predictions. On Wednesday, Nomura boosted its GDP forecast for the year to 4.8% from 4.6%. Peter Alexander, founder of Z-Ben in Shanghai, relayed the Chinese economy has faced similar concerns in the past, such as in 2013 with the emergence of trust companies and shadow banking, but still managed to move forward. He mentioned that policies have been implemented to provide corrective action and have stabilized, if not delayed, what was perceived to be inevitable.
Comments