As China grapples with the fallout from a $7 trillion stock decline, officials are gearing up to brief President Xi Jinping on measures to stabilize the market. This move signifies Beijing’s urgency to restore investor confidence and halt the market’s slide, which has erased a significant value from Hong Kong and China equities since their 2021 peaks. The Shanghai Composite Index, for example, is down over 21% from its high in December 2021.
The downturn has been attributed to a variety of factors, including regulatory crackdowns, geopolitical tensions, real estate defaults and internal economic pressures, prompting a call for decisive action to prevent further damage to consumer confidence, especially as the country approached the Lunar New Year holiday.
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China’s real estate sector has been grappling with significant challenges, culminating in a crisis that has reverberated through the country’s economy. The crisis was highlighted by the downfall of China Evergrande, Group one of China’s largest property developers, which became emblematic of the broader issues plaguing the sector. Evergrande’s aggressive expansion, characterized by a rapid acquisition of land and significant borrowing, eventually led to its financial distress. This situation underscored the broader vulnerabilities within China’s real estate market, including high levels of debt, a slowdown in property sales and regulatory changes aimed at curbing speculative investments.
The crisis has had wide-ranging implications, not only for property developers but also for the Chinese economy as a whole. The real estate sector, a critical engine of economic growth in China, has faced $125 billion in bond defaults between 2020 and 2023. This slump has contributed to layoffs, financial instability and a dampening effect on China’s post-pandemic economic recovery.
China’s economic challenges are multifaceted, stemming from a post-COVID recovery that has fallen short of expectations. Despite hopes that the end of stringent COVID-19 restrictions would rejuvenate consumer spending, foreign investment and manufacturing, the reality has been starkly different. Consumers are saving more than spending, foreign firms are withdrawing investments, and the property sector, along with local government finances, has been severely impacted. These developments raise doubts about the sustainability of China’s growth model, which has long been driven by construction and investment over consumption.
The leadership’s response has been to pledge a boost in domestic demand and economic recovery for 2024, with a focus on supporting the economy through more stimulus measures. Yet, the effectiveness of these initiatives remains to be seen, as previous measures have underwhelmed market expectations and investor confidence. The government is advocating for a proactive fiscal policy and a prudent monetary policy, aiming to enhance economic vitality and address the risks and imbalances plaguing the economy. Nonetheless, the path to a sustainable recovery appears complex, with challenges such as managing high levels of debt, stimulating consumption and navigating geopolitical tensions.
In the face of these challenges, China’s efforts to communicate its strategies and reassure both the domestic and international communities have encountered skepticism. Analysts highlight a growing disconnect between official optimism and the realities faced by businesses and consumers. This gap underscores the need for more transparent and effective policy communication to restore confidence in China’s economic direction and stability.
Investor confidence is wavering amid this uncertainty, exacerbated by Xi’s centralized control over economic policy, which has slowed decision-making and policy communication. The stock market has felt the impact, with significant value lost since 2021. Despite attempts by the central bank to inject liquidity, these measures have yet to convince markets of a turnaround. The policy response has been criticized for being too late or insufficiently robust to alter the negative economic trajectory.
The political landscape under Xi’s leadership has shifted toward more centralized decision-making, with an emphasis on “stability” and “common prosperity.” However, this approach has led to challenges in addressing China’s economic complexities, including an over-indebted property sector and murky financial systems. Moreover, Xi’s regulatory crackdowns across various industries have rattled investors and raised concerns about the legal environment for foreign businesses. Despite the establishment of the National Financial Regulatory Administration aimed at addressing regulatory gaps, investor apprehension persists.
As China navigates these turbulent waters, the focus shifts to finding new drivers of economic growth. While the electric vehicle and green energy sectors have shown promise, the semiconductor industry and other high-tech areas face hurdles, including U.S. sanctions and internal inefficiencies. Beijing’s industrial policy, aiming to shift away from traditional growth engines like property and exports, underscores a strategic pivot toward innovation-driven development. However, the success of these measures in rejuvenating the economy and restoring investor confidence remains to be seen.
The situation underscores a critical juncture for China’s economy, with implications for global markets and industries reliant on Chinese growth. As Beijing contemplates its next steps, the world watches closely to see how one of the largest economies navigates these turbulent times, striving to balance growth, stability, and reform in an increasingly uncertain global landscape.
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TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
