China Update | 26 November 2021
The following is the video transcript for 'China Update' published 26 November 2021. It contains material quoted from other sources.
Chinese Economy: Officials Seem Nervous
Before we move into the property sector specifically where the Evergrande triggered housing crisis continues: There are increasing signs that top officials are quite concerned about the general state of the Chinese economy. So let’s first touch on these concerns
On Monday, Chinese Premier Li Keqiang, attended a special symposium in Shanghai to urgently discuss the Chinese economy. The meeting was attended by the heads of China’s biggest economic powerhouses, from Shanghai to Canton.
During the meeting Li expressed that, “unstable and uncertain factors, at home and overseas, are increasing, and China’s economy is facing new downward pressure” and called for efforts to “ensure security in employment, basic living needs and the operation of market entities”
Over the last few days, the State Council, China’s cabinet, released three documents, outlining measures to help small and medium-sized businesses during the “current downturn”
Also, new data this week indicates that the local government debt situation is not improving.
Chinese Financial Media outlet 21st Business Herald is reporting that Debt issuance by local government financing vehicles (LGFVs) this year will likely top 7 trillion RMB, the highest level on record.
According to the report, the average duration of debt maturity has shortened by almost four years and “that the quota for 2022 debt may have been issued earlier than normal.”
China Demography: Birth Rate Collapse
Now let’s move from a source of concern for policy makers to a source of distress.
Over the last 12 months, and especially after the publication of the census earlier this year we have been discussing China’s demographic crisis. Well, we have more new data from the National Bureau of Statistics this week, and you guested it, it’s not good.
This week the National Bureau of Statistics released its annual data on China’s official birth rate – calculated by the number of births in the total population. According to figures China reported its lowest national birth rate in 43 years. In 2020, there were 8.52 newborns per 1,000 people, falling below 10 for the first time ever.
The natural growth rate of the population, the difference between birth rate and death rate, was 1.45 per 1,000 people, also the lowest in decades.
In an interview with state media the vice president of the China Population Association said that the number of births minus the number of deaths — was 2.04 million in 2020, observing that in a nation of China’s size that number is “close to zero”.
And turnaround is highly unlikely, last year, marriage registrations dropped for the seventh consecutive year, down 40% since 2013. And the percentage of women of, what demographers call, prime child bearing age, has been declining for well over a decade –
so not only is the number of babies shrinking, but the number of people who can make babies is shrinking too.
And if this wasn’t bad enough, we must also remind ourselves that there are some analysts who believe the data has been massaged, and that the real fertility rate could be much lower than the official already low 1.3.
Let’s touch on a few key developments from the last few days with the most important bilateral relationship in the world.
On the trade front, new data indicates that China has slowed purchases of all types of goods covered its phase one agreement with the US. We remember that this is the Trump era agreement signed between China and the US during the trade war. China was already behind on its commitments under the agreement before this more recent slowdown, its currently at 56% of the agreement target.
State-run China Daily reports that on Tuesday the People's Liberation Army's Eastern Theater Command “mobilised its air and naval forces” to monitor the passage of a US destroyer in the Taiwan Straits.
The hugely influential, director of American studies at the Beijing-based think tank, China Institutes of Contemporary International Relations CICIR, Wang Honggang, gave a widely followed interview discussing the recent Biden-Xi meeting and US-China relations generally. In the interview Wang expressed that Biden may end up being a weak president distracted by domestic issues, thus Beijing should be wary of any assurances that the current administration can make.
He also observed that “competition can soon deteriorate into hostility” if the US “continues playing the Taiwan Card” and that the US is making a “huge strategic mistake”.
Now Moving from a Chinese America-Expert to an American China-Expert
This week we saw, what I think is a very good point, by US Sinologist Jude Blanchette writing in Foreign Affairs on the US-China relationship. This is what he observed:
“It is not fear of the party’s collapse that motivates him [Xi] but a determination… understanding Xi as determined rather than desperate has enormous implications for the United States’ approach to the bilateral relationship. Beijing’s recent moves suggest genuine self-assurance and yes, in some measure, even self-delusion. Like it or not, though, the United States and its allies should expect to deal with a confident China led by Xi for the foreseeable future.”
- Jude Blanchette
- Freeman Chair in China Studies at the Center for Strategic and International Studies
Housing Crisis: Modest Regulatory Easing Not Enough
Last up, the property crisis
It is my view, and I believe the consensus view, that Beijing has eased some pressure on property developers in recent weeks.
We have covered these developments on here, two big examples are the loosening of credit controls as well as allowing more bonds to be issued. Although, as we have discussed, policies have disproportionally benefitted state-owned developers over private ones.
However, it isn’t clear whether Beijing will continue to retreat from deleveraging the property sector out of fear of economic slowdown or whether it will hold the line. And it appears that the housing crisis could be getting worse.
On Wednesday, the UK based, Japanese owned, Financial Times quoted a Beijing based regular as saying “All of our previous attempts to regulate the real estate market have failed because we exited halfway through overhauls. This time the central government is determined to stick to the plan.”
This week we saw local governments, including Shanghai, ease land bidding rules for developers, this move indeed does make things a little easier for property developers, but is more self-serving than anything else, as local government rely heavily on land sales as a source of revenue. Eased requirements include reducing deposits ahead of bidding and deferred full payments.
But that may not be enough to bring in much needed local government revenue. Almost a third of the 700 plots across China that went on sale since September have had to be withdrawn due to no developer interest, this has led to major cities, including Beijing and Shenzhen cutting the reserve prices of land by over 20%.
Chinese financial media outlet, Caixin media, reported on Wednesday that trust companies are scaling back their previously huge investments in the real estate sector because they have lost so much money from their property investments over the last few months.
This is actually a huge deal, and it is being underreported, this move could represent a massive blow to property developers as it hits yet another source of financing. The trust industry is valued at over 3 trillion USD. Property loans officially comprise 13% of the trust company portfolios, equal to roughly 2% of China’s GDP.
There is a lot of uncertainly at the moment regarding the property sector and Beijing’s growth agenda. But, the powerful Central Economic Work Conference should be less than a month away, we should have a better idea what economic policy priorities are for 2022.
As we have discussed before, property development represents 25 – 30% of Chinese GDP, and real estate 70 - 80% of Chinese urban household wealth.