Sorry to keep harping on the same subject, but the property market is still the focus of our thoughts. We got official stats for the housing market in 2021 this week, and they showed rising prices in only six provinces and regions of China, obviously including Beijing and Shanghai, and declines in most of the rest. Land sales in some important markets including SZ are not falling, but it looks like system-backed funds are increasingly the buyers from local governments, obviously to keep liquidity and prices in the right territory. But such left-hand-right-hand deals are not sustainable for too long. Overall, it’s a problem, and this year, with the 20th party congress coming up in October, things are required to go well. To try to deal with the threat of massive property developer failures, the center relaxed its famous “three red lines” aimed at controlling out-of-control lending and construction, and Evergrande, the trigger for the whole situation, reached agreement with onshore creditors on a delay in bond repayments. Onshore of course means it’s easy—the center can just require the creditors to wait and that’s basically that. Offshore is tougher to handle.
Omicron and the zero covid policy is the more immediate and visible problem, and the sudden spread of the virus, with Tianjin and Shanghai now being in the spotlight, raises the question of how effective controls are, what economic impact it is having and how and when China is going to reconnect to the world given its dramatically different approach to the crisis. Goldman Sachs reduced its estimate of China’s GDP growth rate for this year to 4.3%, citing omicron as the key factor.
Stay masked and avoid anti-vaxxers. And have a great weekend.