A cool breeze from the Chinese real estate market17 November, 2011, 23:09. Posted by Zarathustra
Tags: Economy, Real Estate
FT Beyond Brics flagged a report from Bloomberg Businessweek on the rather pessimistic outlook from Zoomlion Heavy Industry Science and Technology’s (1157.HK) boss Zhan Chunxin, saying that “Demand for construction machinery has shrunk drastically and growth will no doubt continue to slow next year”.
There are a number of things that drive his pessimistic outlook, as Beyond Brics have pointed out. One of the things could be the slowdown in high-speed railway investment, as it makes no economic sense, and the recent crash has apparently lessen the enthusiasm among people. Another things would be the slowing housing market, and the hugely ambitious plan to build according housing has been largely reduced to holes digging even though the government makes it sound like the housing start plan is achieved. So as these main users of construction equipment are slowing down their pace of investments, the manufacturers of these equipment are right to feel gloomy.
Of course, a cooling real estate market (particularly if we are talking about a major trend reversal) will have more severe impact. IMF has come up a report which highlights the risk towards Chinese financial system, and predictably, the level of real estate prices is one of the concerns (along with shadow banking system and the credit expansion over the past few years). Indeed, even the China Banking Regulatory Commission (CBRC) are telling banks to “step up asset sales and debt restructuring for loss- making local government financing vehicles that are struggling to repay loans” as well as to “cut “high-risk” loans to developers”, according to Bloomberg.
Now everyone “knows” that (or thinks he/she knows that) Chinese government won’t allow property prices falling more than 20% (say), and then everyone except me “knows” (or they believe that but thinking that they know that) Chinese government will for sure support the market and will for sure succeed. As one might noticed, I am sceptical about the ability of the government to engineer whatever scenario they like. While there has been some selective easing happening, and loans growth have picked up somewhat, the big questions remain on the timing, the size and the effectiveness of the easing.