China’s real-estate crisis has dragged down the economy, caused massive layoffs and pushed multibillion-dollar companies to the point of collapse. Many think it’s about to get worse. Sales of newly built homes in China fell 6% last year, returning to a level not seen since 2016, according to China’s statistics bureau. Second-hand home prices in its four wealthiest cities—Beijing, Shanghai, Guangzhou and Shenzhen—declined by between 11% and 14% in December from the year before.
Source: Wall Street Journal
Earlier this month, a local conference was told by a former senior official that the housing downturn would last an additional two years. He thinks new-home sales will fall more than 5% in both 2024 and 2025. A number of economists are making comparisons to Japan, which spent decades trying to rebound from a crash in real estate and stock prices.
Source: Wall Street Journal
China’s stock market rout has become a political problem and powerful politicians are getting nervous about it. China’s benchmark CSI 300 has lost more than a third of its value since 2020 and is now entering its fourth year of decline. Hong Kong’s Hang Seng Index, which includes the shares of many big Chinese companies, has already fallen 10% this year, making it the worst-performing major stock index in Asia.
Source: Wall Street Journal
The sell-off has fueled capital flight from foreign investors, pushed small investors in the country toward safer assets and encouraged emerging-markets-focused funds to adopt strategies that leave China out of their portfolios.
The State Council, chaired by Chinese Premier Li Qiang, said last week that authorities should take stronger and more effective measures to stabilise markets and boost confidence. It called for better regulations, more transparency and an attempt to improve the quality of listed companies, and led to speculation that China is planning a big stimulus package to boost the stock market.
Hong Kong’s benchmark Hang Seng Index rallied in response, closing the day up 2.6% – its best performance this year. Uncertainty remains, but the messaging is clear: Chinese authorities are very concerned.
China is grappling with deflation, weak consumer confidence and the prolonged property slump. Many investors started 2023 with a sense of optimism about China’s post-pandemic re-opening, but they steadily lost faith after a string of disappointing economic data.
China’s economy grew 5.2% in 2023, roughly in line with the government’s target. Senior officials have tried to reassure foreign investors about the country’s long-term potential.
One of the concerns for investors is that China’s economic growth was for many years highly dependent on the property sector, which accounts for around a quarter of economic output. Beijing has tried to encourage a shift away from real estate into other sectors, but the results so far are mixed at best.
The sell-off in Chinese stocks is particularly jarring because other markets have performed so well. US stocks surged last year and set record highs more recently. Japan’s Nikkei 225 index rose 28% in 2023 and has traded at its highest level for more than three decades.
Weakness in China’s economy will concern Australian investors because China is by far our largest trading partner and the major customer for our commodity exports. Nevertheless, perspective is required: even if China’s growth in future years continues to be relatively weak, it is growing off a vastly expanded base and will continue to absorb most of what we dig up and ship out.
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