70 million vacant houses in China have collapsed the domestic market. Investors briefly reacted enthusiastically to interest rate cuts and near-zero inflation. The main stock index surged but only briefly.
These vacant properties amount to 700 million sq. meters of real estate on sale. That’s enough supply to sustain sales for three years.
“The housing market in recent years was a driving force for the Chinese economy, but it has changed due to geopolitics and the aging Chinese society,” says Michał Stajniak, deputy director of the Analysis Department at XTB in an interview with MarketNews24. “There is less construction in China, but still too much. However, limiting expansion in the real estate market adversely affects the performance of the Chinese economy.”
Interest rates were cut to save the economy. Mandatory reserve levels were lowered, freeing up much of the cash held in Chinese banks. A program was announced to purchase assets from commercial banks to get funds for stock market purchases. Financial markets responded quite enthusiastically to these changes. However, stock market rises have now ended.
After a nearly month-long rally in the Chinese stock market, which caused the Hang Seng index (listed in Hong Kong, accessible to many foreign investors) to rise by over 35%, October saw profit-taking. The Hang Seng had its worst session on the Chinese exchange since 2008 during the first decade of October.
Such strong discounts are due to high expectations built on recent growth and the lack of clear signals of improved forecasts for the Chinese economy. Chinese authorities predict that the economy will grow as forecasted, which from an investor’s perspective seems like an unsatisfactory signal.
The decline in the index was reinforced by the lack of additional stimulus packages from China, which was a basis for the strong surge in Chinese companies’ stocks. A series of these factors led to a sharp downturn in the Asian market.
“It was expected that bonds worth 2 trillion yuan would be issued to recapitalize banks giving them a huge amount of money to grant housing and investment loans,” explains the XTB expert. “However, this package that was supposed to stimulate the entire Chinese economy was not announced. It may turn out that it will be difficult for China to achieve its assumed 5% economic growth.”
China’s annual GDP growth rate dropped to 4.6% YoY in Q3 2024 from 4.7% in Q2, above the market consensus (4.5%). At the same time, China’s quarterly GDP growth increased to 0.9% QoQ from 0.7% in Q2.
Industrial production increased in September to 5.4% YoY from 4.5% in August. This is significantly above the market consensus (4.6%). Evidence of economic activity rebounding in China can also be seen in retail sales data (3.2% in September, from 2.1% in August), which came in above market expectations (2.5%).
Meanwhile, investment in urban agglomerations remained at 3.4% in September, the same as August, above market expectations of 3.3%.
China has a trade problem. The trade balance decreased in September to USD 81.7 billion compared to 91.0 billion in August, significantly below market expectations and our forecast. Export growth dropped to 2.4% YoY in September compared to 8.7% in August, while import growth fell to 0.3% against 0.5%, below market expectations (6.4% and 0.9% respectively).
Increasing tariffs on Chinese products from key trading partners affected export dynamics. Notable tariff increases from the US include a hike to 100% on Chinese electric cars and increases to 50% and 25% on many technology, industry, and medical categories.
“A scenario that could save the Chinese economy would be if D. Trump lost the presidential elections, as his previous presidency was associated with a trade war with China,” comments M. Stajniak from XTB. “China needs a world economic recovery, increasing demand for products from this country.”
Source: https://managerplus.pl/zalamanie-chinskiego-rynku-nieruchomosci-70-mln-mieszkan-czeka-na-kupcow-82646
