Real estate drag in China worsens and factory production disappoints

Real estate drag in China worsens and factory production disappoints
Real estate drag in China worsens and factory production disappoints

FILE: Xi Jinping during a ceremony with Bahrain’s King Hamad bin Isa Al Khalifa in Beijing, China on May 31, 2024 (Reuters)

He collapse of the Chinese real estate market worsened in May and prompted new calls for the Government to inject liquidity and credit into the economy, while industrial production – which has maintained growth – fell short of forecasts.

Among a series of data released on Monday, analysts focused on bad news from the housing market, which has been the biggest drag on economic growth in China. The decline in real estate investment and house prices accelerated last month.

Industrial production increased by 5.6% compared to the previous year, according to the National Statistics Officewhich means a slowdown compared to April and does not meet the average forecast from a survey of Bloomberg. Retail sales were somewhat more encouraging than expected, but Chinese shoppers are still far from regaining their pre-pandemic dynamism.

In the opinion of most economists, the figures point to a still weak recovery, which will probably require more measures on the part of Beijing to reinforce consumer demand and correct imbalances, if the 5% growth objective for this year is to be achieved. This could translate into a increase in public spending and in greater efforts by the central bank to put a floor in the real estate markets and get credit to flow.

The most disappointing

The most disappointing thing about the May data is probably that real estate sales barely improved, even after so many support measures”he declared Jacqueline Rongchief economist for China of BNP Paribas SA. In his opinion, the Chinese authorities have to find a way to reduce the rates on existing mortgages, closing the gap with the cost of new ones.

He People’s Bank of China It kept the official interest rate unchanged on Monday for the tenth consecutive month. Economists say the bank’s room to cut rates is limited by the need to shore up the yuan, which faces downward pressure as the US Federal Reserve reinforces your high rates message for longer.

Chinese stocks fell, and the index CSI 300 closed with a decrease of 0.2%. An indicator of shares of Chinese real estate developers fell 3.2% at 3:08 p.m. local time.

Global investment in fixed assets grew by 4% between January and May, compared to 4.2% in the first four months, despite the rebound in the issuance of public debt to finance infrastructure spending.

FILE PHOTO: Drone view of an under-construction Country Garden development in Shanghai, China. The sector continues to be a headache for Xi Jinping and the country’s economy (Reuters)

The growth of China remains “very uneven, with exports and new energy-related capital expenditure as drivers, while consumption and real estate are the drags”, according to economists, including Larry Hufrom Macquarie Capital Ltd. “Slowdown not severe enough to jeopardize growth target”. However, the slowdown is not severe enough to jeopardize the growth target, and while policymakers could take some limited action, “the urgency for major stimulus is low.”

Consumption rebounds

The acceleration in retail sales was the first since November. At 3.7%, the pace is still less than half the 8% recorded before the pandemic, even though social and economic life has largely returned to normal.

According to Michelle Lameconomist for the Greater China of Societe Generale SA, these gains may not last. “It remains to be seen whether the improved retail sales momentum is sustainable“, he claimed.

As households have been reluctant to spend, China has opted for export-led growth. The factory boom helped offset the real estate slump and sustained economic growth. But that strategy faces growing uncertainties as major partners erect new trade barriers that threaten the export engine. Last week, the EU followed in the US’s footsteps and imposed heavy tariffs on Chinese electric cars.

Some analysts are not too worried about the effects. According to Rongof BNPshipments of Chinese electric vehicles to the EU represent only 0.4% of the country’s total exports, and the sales price in Europe is much higher than in the domestic market, which means that car manufacturers will be able to absorb the levies. Rong It expects the tariffs to reduce Chinese export growth by just 0.1 percentage point this year.

To reinforce domestic demand, China In April, it launched an incentive program for companies and households to modernize their old machinery. Part of the plan includes public subsidies to buyers of new cars.

Monday’s data suggests the impact has been limited. In May, retail auto sales fell 4.4% compared to the previous year, which represents a slight improvement compared to the previous month.

Home rescue

At the end of last month, China He also presented a broad package of rescue measures to shore up home sales, at a time when the credit crisis was affecting some of the country’s largest real estate developers. He relaxed mortgage rules and encouraged local governments to buy up unsold homes. Many investors and analysts have warned that financial incentives are not enough and that testing programs in several cities have shown that progress can be slow.

Low domestic demand and deteriorating foreign trade are weighing on business confidence, discouraging companies from investing and pushing some to move production abroad. Credit growth has been mediocre and the monetary supply indicator M1 It contracted in May at the fastest rate recorded since 1996.

In a survey conducted by UBS Group AG surveyed more than 400 senior executives for about a month through mid-May, companies reported weaker prospects for orders, revenue and margins compared to the same period in 2023. There was a decline in the proportion of respondents They plan to increase capital spending in the second half of this year.

We still need new stimulus to arrive“, he claimed Helen Qiaochief economist for the Greater China from Bank of America Global Researchin an interview Bloomberg TV. “Otherwise, growth momentum could weaken greatly.”.

(C) Bloomberg.-

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