Property crisis haunts China investment, consumption

The growth of China’s fixed-asset investment (FAI) and retail sales has remained slow so far this year as falling home prices continue to suppress property investment and people’s spending. 

The country’s FAI increased 3.6% to 28.7 trillion yuan (US$4 trillion) in the first seven months of this year from a year ago, according to the National Bureau of Statistics (NBS). Investment made by state-owned-enterprises (SOEs) grew 6.3% year-on-year but there was no growth in private investment.

Private investment was stagnant as a 10.2% decline in property investment offset the growth in other sectors. 

If property investment is excluded, China’s private investment rose 6.5% year-on-year in the January-July period while the country’s FAI would have gained 8%. 

For the same period, retail sales, a key indicator of China’s domestic consumption, increased 3.5% to 27.4 trillion yuan, the NBS said Thursday. 

Sales of convenience stores, shops and supermarkets rose 5.2%, 4.5% and 2%, respectively. But sales of department stores and branded shops decreased 3.8% and 1.6%, respectively. 

Online sales with physical goods rose 8.7% to 7 trillion yuan, representing 25.6% of total retail sales. Online sales of food and clothes surged 19.7% and 6.3%, respectively. 

“People now have a lower expectation of their assets’ returns as they cannot make money from the property and stock markets,” a Guangdong-based writer using the pseudonym “Dahuzi” says in an article on Thursday. “It’s normal that they don’t want to spend money.”

“To be more willing to spend money, people need to see that the property and stock markets or inflation are going to surge,” he says. “It all depends on whether the United States Fed will start the rate cut cycle in September.”

He says when mortgage rates fall below 3% while rental yields rise above 3%, people will have the incentive to enter the property markets.

Currently, most Chinese banks are offering homebuyers mortgage rates between 3.1% and 3.7%, with a few in Guangzhou offering theirs at as low as 2.9%. Meanwhile, rental yields are about 1-2%, media reports said.  

Falling property prices

Of the 70 largest Chinese cities by population, 64 saw their home prices down in the first seven months of this year from a year earlier, according to the NBS. In the secondary markets, all the 70 largest cities saw declines in home prices. 

According to a calculation by Reuters, the price index of newly built residential properties fell 4.9% year-on-year in July, the biggest drop since June 2015. It also represented a decrease for 13 consecutive months. 

The NBS also said China’s property sales dropped 18.6% to 541.5 million square meters, or down 24.3% to 5.33 trillion yuan, in the first seven months from a year ago. 

“At the moment, most property indices are still falling, meaning that the market correction is ongoing,” Liu Aihua, spokesperson and chief economist at the NBS, said in a media briefing on Thursday.  

Liu said the central government will continue to push forward measures that can ensure the healthy and steady development of the property markets. 

She said these measures include

• a previously-announced plan to purchase unsold homes and transform them into public rental houses,
• a new plan to allow local governments to decide their own property rules and
• an ongoing plan to ensure that property developers can complete their construction work and deliver homes to their customers. 

Economic stimuli 

On July 30, the Chinese Communist Party (CCP) Central Committee’s politburo in a meeting chaired by General Secretary Xi Jinping said the Chinese economy is “facing more adverse impacts from changes in external environment while effective domestic demand remains insufficient.” 

It said there are still various risks and potential dangers in major sectors, as well as challenges resulting from the replacement of traditional growth drivers with new ones.

The meeting said it is necessary to strengthen countercyclical adjustments, speed up the comprehensive implementation of determined policy measures and prepare for the launch of a batch of “incremental policy steps” in a timely manner.

On August 1, Yuan Da, a deputy secretary-general of the National Development and Reform Commission, said in a media briefing that the “incremental policy steps” include the government’s program to allocate 300 billion yuan in ultra-long special government bonds to expand an existing trade-in and equipment-upgrade policy. 

The program, announced on July 25, will at least double the subsidies for new-energy and traditional fuel-powered vehicle purchases to 20,000 yuan and 15,000 per car, respectively. It will also subsidize a range of equipment upgrades, from agricultural tools to apartment elevators. 

However, the 300 billion yuan budget is only about 0.3% of last year’s FAI and retail sales, which added up to a combined total amount of 97.45 trillion yuan.

Money from Hong Kong

On the same day when the CCP’s politburo held its meeting on July 30, Xi in a letter called on Hong Kong business people to boost investment in mainland China and contribute to the country’s reform and opening up. 

Also on July 30, Fang Hanting, a researcher of the Chinese Academy of Social Science, in an article suggested setting up a commission to govern the Guangdong-Hong Kong-Macau Greater Bay Area and require all people inside the area to use the same currency and identity-card system. 

The article was later taken down from the Internet. Pro-Beijing academic Shiu Sin-por said Fang’s suggestion is bold but inappropriate as Hong Kong’s capitalism would then be extended to Guangdong province.

Financial Secretary Paul Chan and representatives from Hong Kong’s business community held a seminar to “study the spirit of Xi’s letter” on August 6.

Meanwhile, Hong Kong-listed CK Infrastructure said on Wednesday that it received approval from the United Kingdom’s Financial Conduct Authority for a secondary listing on the London Stock Exchange. 

CKI Chairman Victor Li, the elder son of the 96-year-old tycoon Li Ka-shing, said Thursday that his company has the ability to use its international capital to invest in Hong Kong or mainland China whenever there are huge investment opportunities. 

Li Ka-shing was among the first batch of Hong Kong businessmen who started investing in China when the country’s then-leader Deng Xiaoping called for opening up the Chinese economy in the late 1970s. 

Read: China stats show shift from FDI to investment abroad

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