The most important indicators from the sluggish Chinese economy, so far as the Reserve Bank is concerned, are the monthly reports on house price movements and house sales.
Last week we learned that the value of new house sales fell 9.7% in the 11 months to November, after a 9.9% drop in October.
Yesterday China’s National Bureau of Statistics said new home prices fell 3.7% last month, from November, 2013, the third straight annual decline following falls of 2.6% in October and 1.3% in September – in other words the pace of decline is accelerating after the drop in September, which was the first monthly fall in more than two years.
That is not reassuring news.
On the a monthly basis prices fell in 67 of the 70 cities tracked, versus 69 a month before. The average fall was 0.6% slower against October’s 0.8%.
After rising by up to 9.6% (annual) in the early months of this year, prices are now falling rapidly, dragging down demand for building products, whitegoods, loans and impacting retail sales.
Prices in Beijing were down 2.1% from November, 2013, while Shanghai prices were down 2.9%
China’s central bank cut benchmark interest rates on November 21, which came to late to have any impact on sales, so we will have to wait and see what happens in the next four months. February will be out because the Lunar New Year/Spring festival falls mid month and will disrupt economic activity, as it does every year.
But while property is weak, Chinese investors are switching to the hot stockmarket for their jollies.
The Financial Times says local investors have been opening trading accounts, or reactivating old, unused accounts to play the market which is up more than 40% so far this year, and more from mid year.
Despite that optimism, and the cut in official interest rates, the Financial Times has also pointed out that market interest rates hit their highest level on Wednesday since January of this year.
"The seven-day bond repurchase rate, a key gauge of liquidity in China’s money market, touched 7.55 per cent on Wednesday, the highest since late January, when rates traditionally spike ahead of the lunar new year holiday. Yet in spite of rising rates, the People’s Bank of China skipped open market operations on Thursday for the seventh straight session,” the FT reported.
More puzzles from the most important economy for Australia and the Reserve Bank to analyse from afar.
Meanwhile the weakening property sector has seen the Asian Development Bank has cut its 2014 and 2015 growth forecasts for China to 7.4% and 7.2% respectively.
The new forecasts are from the 7.5% and 7.4% estimates made in September, are based the continuing real estate market correction in China and its spillover to related sectors like construction, according to the latest supplement to the bank’s Asian Development Outlook 2014 Update.
“The growth moderation in China is seen extending into the fourth quarter,” the report said. “The forecast is revised down to 7.4 percent for this year and 7.2 percent for 2015,” the ADB said.
