The state of the property market is still a big story in the China world, but let’s start with the energy crisis, a pretty much unpredicted black swan which flew onto the radar just a few weeks ago, and has created all sorts of havoc. Coal, which fuels most electricity power plants, is in short supply. The resulting blackouts and rolling rationing of electricity in many places is increasing the cost of manufacturing, given the delays and inconveniences caused by unpredictable power supplies. The government’s efforts to make China greener than green have been put on hold for a while to help resolve the problem, and year-on-year imports of coal and gas are up by 76% and 23% respectively. Winter is coming and this is a problem that needs to be resolved. The Center knows it. The take-away? That everyone is fallible.
But back to property. With the shadow of Evergrande still stretching out over the land, another property developer–Sinic–warned it might default on a $250 million bond payment coming up next week. Meanwhile, house prices are reported to have dropped in 16 of China’s 31 provinces, though the degree of the fall is limited by several factors, most particularly indications from various local governments that they will hold to a floor on pricing, thereby not allowing for anything precipitous to occur. Sales of apartments by property developers in September were down dramatically–more than 20% for the top 100 property developers nationally–even on last year, the year of COVID. But in a weird decision that for us, at least, raises questions, Morgan Stanley upgraded China’s property market from “in line” to “attractive.” How did that conversation go, we wonder.
Have a great weekend. It’s not an Indian summer, it’s a Chinese summer.