Chinese social media censored a top economist for his bearish predictions. He now warns that China’s property crisis will take a decade to fix | Canada News Media
How long will it take to fix China’s flailing real estate sector? One of the country’s most prominent economists, who was ejected from its social media platforms for his bearish predictions about the economy, thinks it might take 10 years to fix.
“Fixing the property sector may be a multiyear or even a decade’s work in front of us,” Hong Hao, chief economist for Shanghai-based hedge fund Grow Investment, said on CNBC Tuesday.
That will mean more pain for China’s suffering real estate sector, now two years into its debt crisis. A default in 2021 by China Evergrande Group, one of the country’s largest private developers, sparked contagion across the whole sector as financing dried up. Construction stopped, leading to protests as homebuyers realized they might never get the homes they paid for.
Now with China’s economy underperforming after the COVID pandemic, Beijing officials are grappling with how to wean the economy from real estate without torpedoing the economy in the short term.
For much of the past decade, Chinese developers like Evergrande went on a debt-fueled construction spree, building millions of new homes throughout the country. That’s led to an oversupply, dragging down prices.
“We built way too much housing for Chinese people,” Hong said on CNBC.
Demand is also in long-term decline. Investment bank Goldman Sachs estimated in August that China’s annual urban housing demand peaked at 18 million units in 2017, and will fall to 11 million units this year and 9 million units by 2030.
On Tuesday, Hong pointed to slowing rates of urbanization, with fewer rural Chinese moving to the cities for work. “Two years ago, we were selling 18 trillion yuan [$2.5 trillion] worth of property,” he said. “This year, we’d be lucky to do even [10 trillion yuan], and going down the road, we’d be lucky to do even [5 trillion] or [6 trillion].”
Bearish takes
Hong is an outspoken commentator on China’s economy, growing his audience during his tenure as the head of research of BOCOM International, a division of state-owned Bank of Communications.
Yet Hong’s takes were censored last year amid China’s tough COVID lockdowns in cities like Shanghai. Hong argued that the lockdown, which trapped millions of people to their apartments in a bid to stop an outbreak, would hurt China’s economy and would encourage capital flight.
Both WeChat—the ubiquitous messaging platform—and Twitter-like Weibosuspended Hong’s accounts in May 2022. Hong soon resigned from BOCOM, which the company said was for personal reasons.
When Hong got a new gig at Grow International a few months later, he warned that those working at state-owned brokerages were starting to face restrictions about what they could say. “Even if you don’t speak the truth, market prices will tell the truth,” he told Reuters at the time.
Hong’s suspension was an early indicator of Beijing’s censorship of bad economic news. This year, regulators are asking analysts and economists to stop using negative language to describe China’s economy—think “subdued inflation” rather than deflation—and the statistics bureau has stopped releasing some indicators like consumer confidence and youth unemployment.
China’s economic recovery has stagnated. Retail sales and manufacturing have grown at lower-than-expected rates for much of the year, and foreign trade has plunged. Still, Chinese economic data beat forecasts last month, suggesting that government support measures may finally be having an effect.
China’s property crisis
China’s real estate sector contributes as much as a third of the country’s GDP. Yet the sector’s liquidity crisis shows no signs of ending anytime soon.
China Evergrande, whose default arguably triggered the crisis in the first place, missed a payment on an onshore yuan-denominated bond on Monday. The developer revealed over the weekend that it could not issue new debt. Chinese authorities are also probing the developer’s former CEO and CFO, reports Caixin.
Another major Chinese developer, Country Garden, is also having debt issues. The developer, which has four times as many projects as Evergrande, recently made a $22.5 million interest payment with just days to spare.
While China has relaxed some real estate policies in a bid to stabilize home prices, analysts think that the glory days of the sector are over.
That may be by design, as officials try to wean China off its real estate sector. On CNBC, Hong suggested that once China’s economy relies on other industries rather than the property sector, then “we will have a better, much healthier Chinese economy than before.”
“Not having an overbearing Chinese property sector actually is good for the Chinese economy going forward,” he said.
OTTAWA – Finance Minister Chrystia Freeland says the government is making some changes to mortgage rules to help more Canadians to purchase their first home.
She says the changes will come into force in December and better reflect the housing market.
The price cap for insured mortgages will be boosted for the first time since 2012, moving to $1.5 million from $1 million, 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.
On Aug. 1 eligibility for the 30-year amortization was changed to include first-time buyers purchasing a newly-built home.
Justice Minister Arif Virani is also releasing drafts for a bill of rights for renters as well as one for homebuyers, both of which the government promised five months ago.
Virani says the government intends to work with provinces to prevent practices like renovictions, where landowners evict tenants and make minimal renovations and then seek higher rents.
The government touts today’s announced measures as the “boldest mortgage reforms in decades,” and it comes after a year of criticism over high housing costs.
The Liberals have been slumping in the polls for months, including among younger adults who say not being able to afford a house is one of their key concerns.
This report by The Canadian Press was first published Sept. 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales rose 1.4 per cent to $71 billion in July, helped by higher sales in the petroleum and coal and chemical product subsectors.
The increase followed a 1.7 per cent decrease in June.
The agency says sales in the petroleum and coal product subsector gained 6.7 per cent to total $8.6 billion in July as most refineries sold more, helped by higher prices and demand.
Chemical product sales rose 5.3 per cent to $5.6 billion in July, boosted by increased sales of pharmaceutical and medicine products.
Sales of wood products fell 4.8 per cent for the month to $2.9 billion, the lowest level since May 2023.
In constant dollar terms, overall manufacturing sales rose 0.9 per cent in July.
This report by The Canadian Press was first published Sept. 16, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
