The endless summer this year brought an unprecedented heatwave to China, and while it is now abating, the impact in terms of water, electricity and crops is only just beginning to become clear. Hydroelectricity is a major source of energy, especially in rural areas across China and if the water dries up, the lights don’t turn on. China is pushing ahead with solar and wind, but lots of extra coal has been burned to keep the wheels turning in the meantime. This was yet another unexpected development in the time warp that is 2022, with more expected.
Meanwhile, the property market problem just seems to get bigger every week. There have been property market issues a few times in the last two or three decades, but nothing like this. What is the answer? The Center has been pushing state banks across the country to provide support for developers so they complete apartment block projects that have stalled, leaving many homebuyers in limbo. But the state banks, according to a Reuters article, are pushing back, pointing out the obvious, which is that further such measures will place a huge burden on their loan books and in the end exacerbate the problem. There is a possible evil spiral here, where things get worse because things are getting worse.
Also tied up in this, of course, is local government finances, which rely heavily on land sales rather than property taxes. One quick answer, we have always felt, would be to change at a stroke the 70-year usage rights leases that are property “ownership” in China to freehold. Property prices would surge, but Those in Command would never do freehold. The land belongs to the, what’s the word, state. But one suggestion out there at the moment is that the 70-year leases could be changed to unlimited leases, and that the payback for that would be a window of opportunity in which property taxes could be implemented. Possible? But is Unlimited Usage Rights Forever not effectively freehold?
Meanwhile, endless COVID testing continues, and the economic slowdown means the 5.5% GDP growth target for the year is for sure unreachable. Consumer confidence and spending are way down, and while exports are up, the very smart Michael Pettis explains that this is in fact a negative because it reflects the fact they producers cannot sell at home and have no choice but to offload elsewhere.
Meanwhile again, Huawei’s founder sent a very pessimistic letter to all staff saying things are going to be very tough for a decade. And then there’s the big 20. When will it be held? Our money would be on earlier rather than later, perhaps even the end of September. Who knows?
Have a cool weekend.