via notayesmanseconomics:
As 2023 developed we saw rather a divergence between our view of the Chinese economy and the media or mainstream one.Their view was one of economic recovery whereas we continued with the theme of the consequences of the bursting of the property bubble.Indeed in something of a theme for today there was a Japanese style theme as we noted the risks of a balance sheet style economic slowing. So let us start with the property market.
(Yicai) Nov. 29 — At least 16 Chinese metropolises are rolling out more measures, such as cutting taxes and offering subsidies, to help people sell their second-hand properties in order to buy a new one and bolster the sluggish newly built housing market.
So we can start with something similar to what the western capitalist imperialists try as I think of my own country having a Stamp Duty holiday.Although there is more in the nuance as China seems a little desperate to boost the sales of new housing.
The new policies have made the sale of second-hand houses smoother in some places, but it is still difficult to sell a pre-owned home as there are so many up for sale that closing a deal takes a very long time, some real estate agents told Yicai.
The emphasis is mine and in the words of Taylor Swift it suggests “Trouble,Trouble, Trouble”. The economic situation is not helping either.
A lot of potential buyers of second-hand homes have an unstable income amid the economic slowdown and are very cautious about buying a house, so it is difficult to make a sale, Zhang Hongwei, founder of Jingjian Consulting, told Yicai.
So times are a lot tougher in the housing market. Also as Michael Pettis points out below renting looks relatively attractive.
This is an important constraint: rental yields are so low that it makes more sense to rent an apartment than to buy one, unless you expect property prices to rise rapidly. This implies that the only way to prevent prices from declining further is to re-inflate the bubble.
So the Chinese authorities are in rather a Damned if you do and Damned if you don’t position. This is very significant when we recall how much of Chinese economic activity and GDP was based on the property sector and its boom.
Also the Yical article has another issue.
“For local governments to buy second-hand properties they need to be in a strong financial position so this is only a tentative approach and is unlikely to be adopted widely,” Zhang said.
As we have looked at the situation over the past couple of years we have seen local and regional authorities already with debt issues. On that subject I notice this from Bloomberg yesterday.
That’s prompted successive waves of support from central and local authorities, but some economists have argued that government debt is now too concentrated at the local level.
The article went further.
China’s regulator wants provinces to come up with their own plans to handle financial risks, according to a report, about a month after officials pledged to set up a mechanism to resolve local debt issues.
So local and regional governments are not in a position to help the property sector much and some will be heading in the opposite direction as they try to deal with their own debt issues.some of which have come from the property sector.
Thus we see what we are expecting which is a type of balance sheet economic slow down and hence the Turning Japanese theme.Not everything is the same as I note the local government involvement but the direction of travel is.
More Debt Problems
The balance sheet recession theme really rather leapt off the pages of the Financial Times yesterday.
Defaults by Chinese borrowers have surged to a record high since the outbreak of the coronavirus pandemic, highlighting the depth of the country’s economic downturn and the obstacles to a full recovery.
Okay, so how many?
A total of 8.54mn people, most of them between the ages of 18 and 59, are officially blacklisted by authorities after missing payments on everything from home mortgages to business loans, according to local courts.
That figure, equivalent to about 1 per cent of working-age Chinese adults, is up from 5.7mn defaulters in early 2020, as pandemic lockdowns and other restrictions hobbled economic growth and gutted household incomes.
The rules on bankruptcy are rather strict in China.
Under Chinese law, blacklisted defaulters are blocked from a range of economic activities, including purchasing aeroplane tickets and making payments through mobile apps such as Alipay and WeChat Pay, representing a further drag on an economy plagued by a property sector slowdown and lagging consumer confidence. The blacklisting process is triggered after a borrower is sued by creditors, such as banks, and then misses a subsequent payment deadline.
Rather curiously that will drive demand for the cash economy.But at a time when China was supposed to be emphasising consumption as a vehicle for economic growth this will be a brake on it. The comsequences can be very severe.
Jane Zhang, owner of an advertising company in south-eastern Jiangxi province who defaulted on a bank loan, said she panicked when a local court banned her in May from using WeChat Pay to buy meals for her toddler.
“I thought my son was going to starve since I didn’t have any cash at hand and all my daily purchases were made through WeChat,” said Zhang, who later persuaded the court to drop the mobile payment ban while keeping other punishments in place.
In the modern world restrictions on electronic payments are more and more significant. Indeed in this instance they put not only a brake on economic activity but any realistic way of settling the debt.
With little hope of relief, many blacklisted borrowers have given up on restoring their financial health. Zhang decided to close her advertising business after losing accounts from local government departments, which are banned from working with blacklisted companies.
So we see the situation developing and worsening from another angle. Plus there appears to be an issue with workers not being paid according to Caixin Global.
Comment
This situation is rather like the situation described below by Paul Simon.
Slip slidin’ awaySlip slidin’ awayYou know the nearer your destinationThe more you’re slip slidin’ away
As we look at the property crisis each bit is slipping away as there are more and more properties on the market, local governments have added to their debt as have Chinese investors and buyers and times are harder for consumers. As to the property companies they are looking for more help.
#Shanghai Stock Exchange said it held meeting with 8 #property developers and will further support real estate sector’s reasonable financing needs. ( @YuanTalks )
The problem at this stage is that words like “reasonable” usually mean kicking the can for a bit rather than any real reform. Like this perhaps?
CHINA EVERGRANDE WINDING-UP HEARING IN HONG KONG ADJOURNED TO JAN 29.-Bloomberg ( @Sino_Market)
Or in yet another Japanese link you can prop up the market as we start with Friday.
State securities media CSJ says China’s state-owned capital operating company has bought some ETFs run by public funds. Chinese stock market rebounds in the afternoon, benchmark $SHCOMP erases 0.5% fall. National Team again. ( @Sino_Market )
Once you start it is hard to stop.
China’s state-owned capital operating company China Reform Holdings Corporation Ltd. will expand investments in the market each day next week, CSJ cites sources. ( @Sino_Market )