One of the world’s few remaining real estate bubbles finally seems to be losing air. Real estate transactions have slowed so quickly that in the last two weeks, brokerages across China have laid off thousands of brokers and closed hundreds of offices.

News media have reported on at least five street demonstrations in Shanghai since Oct. 22 as early buyers in condo projects have protested discounts offered to later buyers, even breaking into sales offices and smashing models of the buildings and apartments.

A 32-year-old protester said that he and his wife had paid $173,000 last January for an 850-square-foot apartment in a building on the outskirts of Shanghai. But the developer later cut the price for the remaining units of this size in the building to $124,000, wrecking the resale value of the condo.

To add insult to injury, the building is not scheduled to be completed until May.

AFP is reporting that cash-strapped developers are offering a series of enticements, including luxury cars, to lure potential apartment buyers. Today, The Diplomat’s Mu Chunshan placed China’s housing bubble in the context of broader economic uncertainty and the European debt crisis:

Europe is the largest single market for Chinese exports, and the crisis in Greece and Italy will naturally put pressure on China’s economy. Indeed, figures released today already show China’s exports rising at their slowest pace in two years. To protect growth and prevent a hard landing, China may consider easing monetary policy, a move that would risk exacerbating the property bubble that the government has busily been trying to deflate.

Such concerns aren’t unfounded. I remember during the global financial crisis of 2008 receiving half a dozen marketing text messages a day. I sometimes even received cold calls from sales agents. At the time, China’s property market was still depressed, with properties within a six to seven kilometer radius of the Forbidden City being priced at as little as 10,000 yuan ($1,580) per square meter.

…

And now, my phone is once again ringing with sellers highlighting the falls in property prices. Is the Chinese real estate bubble bursting? Could falling property prices and a possible slowing of European demand prompt the Chinese government to ease monetary policy once more? And would this spark another property boom just as prices look to be falling in some areas?

Similarly, the Wall Street Journal questions how the Chinese government will walk the tightrope if property prices fall too far and fast:

An unanswered question is whether China can gently let the air out of its real-estate bubble or whether the bubble will burst, undermining economic growth. With the European Union and U.S. struggling to kick-start their own economies, global growth depends increasingly on the health of the Chinese economy, the world’s second-largest.

Beijing’s top officials say they plan to stay the course. “I will especially stress that there won’t be the slightest wavering in China’s property-tightening measures—our target is for prices to return to reasonable levels,” Premier Wen Jiabao said in a speech on Sunday in Russia.

See also previous CDT coverage of China’s attempts to curb debt and regulate inflation, and growing signs of a credit crisis in Wenzhou, where property developers and entrepreneurs have turned to the shadow lending market after monetary tightening hindered their access to traditional funding sources.

© Scott Greene for China Digital Times (CDT), 2011. | Permalink | No comment | Add to del.icio.us
Post tags: debt crisis, economic slowdown, hard landing, housing bubble, inflation, interest rates, monetary policy, property prices, Wen Jiabao
Download Tools to Circumvent the Great Firewall

China is not winning its inflation fight and that could mean a return to monetary tightening in the months ahead. China is the world’s steam engine at the moment, and any additional pressure to slow the economy could lower global growth estimates going forward.

China’s core inflation index came in at 6.5% in July, up a tad from 6.4% in June, but breaking a three year record nonetheless. The National Bureau of Statistics in Beijing reported on Tuesday that rising food prices were to blame. Average food inflation rose a whopping 14.8% in July from a year ago. The price of pork, a staple food in China, soared by nearly 57% last month, the National Bureau of Statistics reported.

News of manufacturing slowdown in China, coupled with the news about inflation, has caused Chinese stocks to fall to a twelve month low. From Xinhua:

Chinese stocks dropped to a 12-month low on Tuesday on concerns over the strength of global economic recovery and China’s stubbornly high inflation.

The benchmark Shanghai Composite Index fell 0.03 percent to close at 2,526.07. The Shenzhen Component Index rose 0.02 percent to finish at 11,315.08.

Combined turnover dropped to 198.52 billion yuan (about 31.02 billion U.S. dollars) from 214.8 billion yuan the previous trading day.

Losers outnumbered gainers by 588 to 322 in Shanghai and 837 to 460 in Shenzhen.

The country’s Consumer Price Index (CPI), a main gauge of inflation, surged 6.5 percent in July year-on-year, its highest level in 37 months, the National Bureau of Statistics said on Tuesday.

A faltering global recovery will make it harder for the government to curb inflation, as a possible third round of quantitative easing by the U.S. Federal Reserve is expected to worsen global liquidity.

However, despite concerns that the Chinese government may increase interest rates again to curb inflation, other analysts say that interest rates may remain stable, in an attempt to boost exports. From Bloomberg:

China may join Asian nations from South Korea to India in delaying interest-rate increases as the global stock rout encourages officials to put growth ahead of tackling inflation.

The People’s Bank of China will leave borrowing costs unchanged for the rest of this year, according to eight of 10 analysts surveyed yesterday. Economists’ median forecast is for South Korea to extend a pause for a second month tomorrow, while Indonesia stayed on hold yesterday.

“Usually the Chinese government stops doing anything when there’s chaos around, that’s the instinct,” said Andy Xie, an independent analyst who was formerly Morgan Stanley’s chief Asiaeconomist. Interest rates will be “on hold for the time being, until global markets are recovering,” he told Bloomberg Television in Hong Kong.

The nation’s key one-year lending rate is 6.56 percent after three increases this year, the most recent in July.

© cdtstaff for China Digital Times (CDT), 2011. | Permalink | One comment | Add to del.icio.us
Post tags: China stock market, inflation, interest rates
Download Tools to Circumvent the Great Firewall

The People’s Bank of China raised interest rates three times this year and boosted lenders’ reserve-requirement ratios on six occasions, exacerbating a cash crunch that’s driving bond yields higher and making local assets more attractive to overseas investors. U.S. Treasury yields are falling amid signs the economic recovery is losing momentum. Gross domestic product rose 1.6 percent in the second quarter, compared with growth of 9.5 percent in China, official data show.

“U.S. Treasury yields have eased on growth concerns, while China remains characterized by a strong GDP outlook, still high inflation and a relatively tight monetary stance,” said Delphine Arrighi, a Hong Kong-based rates strategist at Standard Chartered Plc. “It is an incentive to bring funds into China, which is why the central bank monitors this very closely.”

Despite the rising value of the yuan, an advisor to China’s central bank remarked that the yuan will not be a major reserve currency in the next decade. From Reuters:

Confidence in the dollar and the U.S. economy has taken a beating after the United States narrowly escaped a disastrous debt default this week, running the risk of losing its gold-plated credit rating.

Xia’s prediction for the yuan’s future contrasts with others in China who, worried about the dollar’s prospects, have called for alternative reserve currencies, including the yuan.

Xia did not elaborate on why he thought the yuan would not grow into a major reserve currency, but made clear that Beijing should stick to its present model of a managed floating currency regime to shield its economy from risks.

Without giving details, he said China should not have a free float currency regime in the next 10 years, and that while its capital account must be freed to make the yuan convertible, capital controls should only be loosened gradually.

Dagong Global Credit Rating Company, a Chinese agency, downgraded the United States from A+ to A, signifying growing concerns over Washington’s long-term ability to repay its debts. From CNN:

“The squabbling between the two political parties on raising the U.S. debt ceiling reflected an irreversible trend on the United States’ declining ability to repay its debts,” Dagong Chairman Guan Jianzhong told CNN.

“The two parties acted in a very irresponsible way and their actions greatly exposed the negative impact of the U.S. political system on its economic fundamentals,” he said.

Ironically, Dagong’s move could hurt not just the United States but also China, the largest foreign owner of U.S. debt with holdings worth almost $1.2 trillion.

“Our downgrade simply reflects reality,” Guan said. “Our rating didn’t cause China to lose any money — it was the inappropriately high ratings for the U.S. by Western agencies that had led China to make risky investments in U.S. debt.”

© zhou shuren for China Digital Times (CDT), 2011. | Permalink | No comment | Add to del.icio.us
Post tags: bonds, credit rating, currency, Economy, inflation, interest rates, renminbi rate, renminbi revaluation, reserve currency, US debt, yuan
Download Tools to Circumvent the Great Firewall

A double-digit jump in food prices pushed China’s inflation higher in January, adding to pressure on Beijing to cool living costs with more interest rate hikes and other measures.

Consumer prices rose 4.9 percent, driven by a 10.3 percent jump in food costs, data showed Tuesday. That was up from December’s 4.6 percent rate and close to November’s 28-month high of 5.1 percent.

Beijing has hiked interest rates three times since October to cool rapid economic growth and tamp down inflation. But analysts say it needs to do more to curb soaring bank lending while it also tries to increase food supplies to bring down prices.

However, despite the revelation that  there had been a sharp surge in food prices, others believe that these increases were less than expected. From Bloomberg News:

“The driver of the below-consensus reading is the smaller- than-expected increase in food prices,” said Lu Ting, a Hong Kong-based economist with Bank of America Merrill Lynch.

Food prices climbed 10.3 percent last month from a year earlier, according to today’s report, after gaining 9.6 percent in December. Vegetable prices jumped 2 percent, fruit prices surged 35 percent and grain rose 15 percent, according to the statement. Non-food prices rose 2.6 percent from a year earlier.

Inflation has long been an attendant problem to China’s rapid economic growth. Curbing inflation is a key concern for the Chinese government. It has already raised interest rates twice in the past few weeks in an attempt to alleviate inflationary pressures. Read more about recent governmental responses to inflation here.

© cdtstaff for China Digital Times (CDT), 2011. | Permalink | No comment | Add to del.icio.us
Post tags: food prices, inflation, interest rates
Download Tools to Circumvent the Great Firewall

Financial markets are braced for fresh action from China to curb inflationary pressure after Beijing announced the second increase in the cost of borrowing in six weeks. Analysts predicted that the tightening of policy from the People’s Bank of China, which will come into force on Wednesday, will be followed by further steps to deal with the price increases brought about by the country’s double-digit growth rate.

With dealers caught unawares by the timing of the move, the cost of oil and industrial metals initially fell on commodity markets, but later bounced back on speculation that the 0.25% jump in interest rates would do little to reduce China’s rapid expansion or global demand for fuel, food and raw materials.

“It is the first interest rate rise in the Year of the Rabbit, but it will not be the last,” said Xu Biao, an economist with China Merchants Bank in Shenzhen, after the PBC said that from Wednesday benchmark one-year deposit rates would rise by 0.25 percentage points to 3% and one-year lending rates would go up by a similar 0.25 points to 6.06%. “If inflation stays high in February, the central bank will be forced to increase interest rates on a continuous basis,” he added. “Investor confidence will be seriously hurt by expectations of aggressive policy tightening.”

Bloomberg reports on the response to this news in the U.S. stock markets:

US stocks have opened flat as Wall Street weighed China’s latest interest rate hike that stoked concerns growth will slow in the world’s second-largest economy.

Dow Jones Industrial Average rose 1.97 points (0.02 per cent) to 12,163.60 in early trades.

The tech-rich Nasdaq Composite fell 2.63 points (0.09 per cent) to 2,781.36 and the broad-market S&P 500 index pulled back 1.22 points (0.09 per cent) to 1317.83.

With no economic news or earnings releases of note on the US calendar, investors digested the Chinese central bank’s announcement overnight that it would raise interest rates for the third time since October in a bid to tame rising inflation.

© Sophie Beach for China Digital Times (CDT), 2011. | Permalink | No comment | Add to del.icio.us
Post tags: consumer price, inflation, interest rates
Download Tools to Circumvent the Great Firewall

Mainland Chinese and Hong Kong shares fell sharply in early Wednesday trading after the central bank surprised markets a day earlier with an interest-rate increase.

Property developers and commodity shares were hit the hardest, but banks outperformed on hopes the rate increase would improve their interest-rate margins.

The Shanghai Composite Index /quotes/comstock/16k!i:000001 (CN:SHCOMP 3,021, +19.57, +0.65%) dropped 1.3% and the Shenzhen Composite Index slid 0.7%, a day after the People’s Bank of China raised both the one-year lending and deposit rates by a quarter-point, to 5.56% and 2.5%, respectively. In Hong Kong, the Hang Seng Index /quotes/comstock/08s!i:hsi (HK:HSI 23,619, -144.55, -0.61%) lost 1.9%.

China’s rate hike is a positive signal for global growth, investment strategist Michael Yoshikami tells MarketWatch’s Laura Mandaro.

The drop came amid fears that more rate hikes could come later on down the line. Several economists, including those at Deutsche Bank, Barclays and Standard Chartered, said the rate increase likely marked the beginning of a tightening cycle in China.

And the Wall Street Journal’s China Real Time blog gets bankers’ perspectives on the move.

© Sophie Beach for China Digital Times (CDT), 2010. | Permalink | One comment | Add to del.icio.us
Post tags: interest rates, stock market
Download Tools to Circumvent the Great Firewall

China’s accelerating economic recovery without signs yet of a surge in inflation may give the government some leeway in making two crucial decisions: raising interest rates and revaluing the Chinese currency.

But the government cautioned that risks remained, like high unemployment and booming real estate prices.

China’s gross domestic product jumped 11.9 percent in the first quarter, the government said Thursday. That growth rate, the highest in three years, not only surpassed most economists’ forecasts but it also handily beat the 10.7 percent expansion recorded for the final quarter of 2009.

China’s National Bureau of Statistics also reported that the consumer price index rose 2.4 percent in March from a year earlier and that the producer price index was up 5.2 percent. Those figures were generally in line with analysts’ expectations.

© Sophie Beach for China Digital Times (CDT), 2010. | Permalink | No comment | Add to del.icio.us
Post tags: currency revaluation, economic recovery, inflation, interest rates
Download Tools to Circumvent the Great Firewall

To give a deeper understanding of China’s up-and-coming role on the world stage, CDT looks at articles, issues, and policies over the last six months that contributed to the current state of the Chinese economy. While this is not a comprehensive timeline, it will give a basic analysis of China’s reaction to the financial crisis and its role within it.

–
After starting 2008 with a double-digit growth rate, substantial trade surpluses, and over a trillion dollars in foreign reserves, it took almost half the year before China fell victim to the global financial crisis. At first some believed China might be immune; however, as banks began to collapse in the United States and Europe, China quickly found itself drawn into the financial mess.

When the U.S and Europe fell into the credit crisis earlier this year, they were forced to cut back on consumption, which fueled a massive decrease in demand for Chinese imports. China was already experiencing a economic downturn, and the lack in demand from abroad meant factory closures, resulting in high job losses all over China. Guangzhou, a major manufacturing town, lost tens of thousands of workers in 2008, forcing citizens to return to their home in the countryside. Dongguan, and the southern Pearl River Delta, also lost thousands of workers. Suddenly the great engine of China was slowing.

At the same time, China also still seems poised to “rescue” the West. With $1.9 trillion in foreign reserves, a $29.3 billion trade surplus, and potentially undervalued yuan, China still seems to be one of the most influential players in the world – at least from a fiscal perspective. But China became leery. Having been burned by previous sour investments, the country is cautious in handling its $200 billion of sovereign wealth funds abroad. For example, many thought the China Investment Corporation (CIC) would use some of these funds to purchase an additional stake in Morgan Stanley earlier this year; however, Japanese bank Mitsubishi UFJ Financial Group ended up financing the investment. The West is asking China for help, but representatives from China continually answer that the best strategy for China is to focus on its own internal growth.

The Chinese government is working on this in a variety of ways. In the beginning of 2008, the CIC invested money directly into Chinese banks, giving $20 billion to China Development Bank, and $47 to Agricultural Bank of China. The latter held $100 billion of bad loans and was the country’s fourth largest state-owned lender to have to be funded by the government. Then in mid-September, China’s Central Bank cut interest rates for the first time in six years; China wanted to keep inflation levels low, but it also needed to encourage lending. The Central Bank continued to cut rates throughout the remainder of the year. Just a few weeks later, the government introduced a series of tax cuts for new homeowners, lowering the property contract tax from three percent to one percent and decreasing the down payment on certain-sized homes. Perhaps the most well known “stimulus” for China was the $586 billion stimulus package unveiled in November; the package received plenty of speculation in terms of how much “good” it would do the real economy, but many find it difficult to argue with China’s desire to invest in infrastructure.

But most recently, the Chinese government is hoping to change habits. Many Chinese take a certain amount of pride in thriftiness, and Beijing wants to encourage consumption. Consumer spending currently accounts for 38 percent of the China’s GDP, compared to somewhere like the United States where consumer spending is almost two-thirds of the country’s GDP. Part of the previously mentioned $586 billion stimulus package includes incentives for individuals to buy cellphones, furniture, washing machines and flat-screen TVs. And lastly, we can’t forget the ever-argued “manipulation” over the value of the yuan.

Right now China says it needs to focus on keeping its economy growing. With the economic outlook looking much slower for 2009, China needs to address the increasing social unrest from rising unemployment, as well as its role in the turbulent global economy. China’s projected growth for 2009 lies anywhere from 5.5 to 9 percent, and it needs a minimum of 7 or 8 percent growth to provide jobs for the estimated 20 million people that annually enter its workforce.

So what will China do? Most recently outgoing U.S. treasury secretary Henry Paulson met with officials in Beijing to discuss the global financial crisis. At the most recent convening, China’s Central Bank governor, Zhou Xiaochuan, blamed the financial crisis on “excessive consumption and high leverage” by Americans. Yet China holds over $585 billion in United States debt (along with Japan, Great Britain, and countless others), essentially helping to finance the ability of Americans to live beyond their means over the past decade.

In the coming months, it is unclear how China will welcome the new Obama administration, and aside from several small comments, it is yet to be seen how the Obama administration will interact with China. Discussions have obviously begun, as China’s Central Bank governor, Zhou Xiaochuan, met with Mr. Paulson’s successor, Timothy Geithner, earlier this month. At a time where the financial landscape is changing daily, the United States, and the world, are looking at China for its reaction.

Analysts around the world have given their perspective of China’s role in the current economic crisis. To learn more about China’s role within the crisis, here are some additional links:

China 2008: La Repubblica’s Asia Chief Correspondent and Senior Global Columnist, Federico Rampini gave a lecture on the impact of the global economic crisis on US-China relations on November 10, 2008. His speech was followed by the remarks prepared by two discussants, and a Q&A session.

Understanding the Global Financial Crisis: Blogger from The China Vortex discusses the importance, and difference, of home owernership in China and the US.

Video: China Investment Corporation: An interview by CBS’s Lesley Stahl reveals deep insight into the workings of the the CIC by interviewing CIC President Gao Xiqing. Gao discusses the funds goals and how the rest of the world feels about the CIC.

Obama’s New Deal and the fate of migrant workers: Overseas political commentator Liang Jing wrote this essay; translated by Dr. David Kelly.

Book Review: Chinese Capitalism: A new analysis on China’s political and rural economy in the 1980s compared to the 1990s.

Reflections on migrant workers and news on the recent social unrest in China

© msandgren for China Digital Times (CDT), 2008. | Permalink | One comment | Add to del.icio.us
Post tags: 2008, Barack Obama, China 2008, CIC, economic downturn, economic growth, economic growth rates, exports, financial crisis 2008-2009, interest rates, migrant workers, social unrest, U.S. exports to China, U.S. imports, Yuan rate
Download Tools to Circumvent the Great Firewall

The central bank, the People’s Bank of China, announced late Wednesday afternoon that it was lowering by 1.08 percentage points the one-year lending and deposit rates that banks are allowed to charge, effective on Thursday. The new lending rate is 5.58 percent and the new deposit rate is 2.52 percent. The central bank had already cut the benchmark rate three times since Sept. 16 and the benchmark deposit rate twice, by 0.27 percentage points each time.

The one-year lending rate is important in China because banks use it to calculate other interest rates, based on the maturity of the loan and the creditworthiness of the borrower.

Immediately following this news, oil prices rose globally, Bloomberg reported:

Chinese fuel demand has fallen “sharply” since September because of credit-market turmoil, the country’s biggest oil producer, China National Petroleum Corp., said Nov. 17. Prices fell from the day’s highs after a government report showed that U.S. oil and gasoline supplies increased more than forecast.

“Thank you People’s Bank of China,” said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. “The Chinese action is definitely giving us a boost today. I don’t know if this rally will last because we’ve had a number of stimulus packages announced followed by short-term rallies.”

Crude oil for January delivery climbed $2.67, or 5.3 percent, to $53.44 a barrel at 11:25 a.m. on the New York Mercantile Exchange. Prices rose as much as $2.23, or 4.4 percent, to $53 before the Energy Department released its weekly report today at 10:35 a.m. in Washington. Futures have dropped 64 percent since reaching a record $147.27 on July 11.

© Sophie Beach for China Digital Times (CDT), 2008. | Permalink | One comment | Add to del.icio.us
Post tags: economic downturn, energy demand, interest rates, oil prices, People's Bank
Download Tools to Circumvent the Great Firewall

China cut interest rates and allowed banks to set aside smaller reserves, supporting an unprecedented global effort to unfreeze credit markets and ease the worst financial crisis since the Great Depression.

The one-year lending and deposit rates will be lowered by 0.27 percentage point to 6.93 percent and 3.87 percent effective tomorrow, the People’s Bank of China said on its Web site. It reduced the proportion of deposits banks must set aside as reserves by 0.5 percentage point starting Oct. 15.

The Federal Reserve, European Central Bank and four other central banks lowered borrowing costs by half a percentage point at the same time in an emergency coordinated action. China cut rates for the first time in six years on Sept. 15 to reduce the risk that worsening credit turmoil and weakening export demand will cause a slump in the world’s fourth-largest economy.

© Liu Yong for China Digital Times (CDT), 2008. | Permalink | No comment | Add to del.icio.us
Post tags: financial crisis 2008-2009, interest rates, monetary policy, PBOC
Download Tools to Circumvent the Great Firewall