China’s new leadership prepare for property price crackdown

Financial Events

SHARE THIS STORY

China lend Mar13.pngChina’s new premier, Li Keqiang, was the first senior official to confirm that the country’s GDP figures were “for guidance only”, being “man-made and therefore unreliable“. As he told the US ambassador in 2007, he instead used electricity consumption and bank lending (plus rail cargo) as his key indicators. It therefore seems appropriate to mark Li’s appointment this month by reviewing the latest data. As the chart shows:

• Lending (red column) and electricity (green line) had the usual strong start in January
• But both dipped sharply in February. This seems more than just the effect of Lunar New Year
• Electricity consumption was down 12.5% versus 2012, and the lowest since February 2011
Combined January/February consumption was thus only up 5.5%

Electricity consumption has proved a good proxy for real GDP growth in the past. And now a senior official has confirmed that those expecting a major new wave of stimulus spending are likely to be disappointed.

Liu Shijin, deputy director of the State Council’s Development Research Center, warned on Sunday that “some may think the economic growth has bounced back from the bottom since the fourth quarter last year and will regain high-speed growth above 9 percent – but they are too optimistic.” Instead, he described the recent economic bounce as only “temporary”.

Another senior official, Zhu Zhixin, deputy director of the National Development and Reform Commission, made the new leadership’s position even clearer. He stated that “the pivot point is to guarantee housing for subsistence needs, or the housing demand from low-income citizens“. And he added that whilst the government regards construction as a core pillar for the economy, “China does not regard its property market as a pillar sector“.

More signs are thus emerging that major economic reform is underway. Hence 1993’s leadership transition may well provide a useful parallel for today’s policy changes. Then president Jiang Zemin (kingmaker in the recent politburo appointments) and economics minister Zhu Rhonji initiated a major credit crackdown to curb speculation in the property market. Property prices dropped 40% in the major cities, and private sector GDP growth was just 3%.

Recent speculation in the property market has been on a much greater scale. Current prices in the major cities are twice as expensive in terms of earnings as in the US at the height of the subprime bubble. As Wang Shi, chairman of China’s largest real estate developer Vanke, has warnedthere are obvious bubbles in the property market, and it is possible it will get out of control and crack.

Whilst it will therefore be very painful to burst the bubble in the short-term, the risks of allowing it to continue could prove far worse.

PREVIOUS POST

Demand weakness spreads across Europe and Asia

25/03/2013

The blog was in sober mood when giving its usual New Year Outlook in January, wa...

Learn more
NEXT POST

EU auto sales continue their decline

27/03/2013

There really isn’t very much to say about the latest EU auto sales data. T...

Learn more
More posts
Economic risks rise as the lockdowns end
14/06/2020

It is now 13 years since I wrote the first post here, in June 2007. A lot has happened since then: ...

Read
China’s property sector is at the epicentre of the crisis
29/03/2020

A branch of Centaline Property Agency in Hong Kong © Bloomberg Indebted Chinese property developers...

Read
“They may ring their bells now, before long they will be wringing their hands”
15/03/2020

The wisdom of Sir Robert Walpole, the UK’s first premier, seems the only possible response to ...

Read
Will stock markets see a Minsky Moment in 2020?
05/01/2020

Few investors now remember the days when price discovery was thought to be the key role of stock mar...

Read
Chart of the Decade – the Fed’s support for the S&P 500 will end with a debt crisis
22/12/2019

Each year, there has been only one possible candidate for Chart of the Year.  Last year it was the ...

Read
$50bn hole appears in New York financial markets – Fed is “looking into it”
29/09/2019

Most people would quickly notice if $50 went missing from their purse or wallet. They would certainl...

Read
China’s renminbi and the global ring of fire
01/09/2019

China’s property bubble puts it at the epicentre of the ring of fire © Reuters  China’s de...

Read
Stock markets risk Wile E. Coyote fall despite Powell’s rush to support the S&P 500
06/01/2019

How can companies and investors avoid losing money as the global economy goes into a China-led reces...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more