China Slows Down

Monday, September 10, 2012 5:27
Posted in category The Big Picture
Comments Off on China Slows Down

Given the fact that I had several emails from the large investment banks with their analysis on today’s numbers, I guess it is hard to say that there was any surprise in the data that was released.

Which, if we were all in limitless growth anonymous would be stage two.  Accepting there are limits to growth.

Interestingly enough, going back to the “street” I have yet to see the exodus of migrant workers, but where I am beginning to see visible issues is once again in retail real estate.  Besides the numerous slots available in the major areas of Huai Hai and Nanjing Roads, a few of my recent conversations with investors were surrounding the fact that there are several high rent buildings still under renovation.  renovations that have taken YEARS… which are idle.  Idle largely because the owner sees no economic reason to continue with the work as rents are off.

What is to be done?  What will the fuel source be?  Infrastructure investments of course.  At least that is what the common view is.

A view the UBS’s comment, The Good, the Bad and the Make-Believe (email me for a copy), says no one should get overly excited about as it was already baked into expectation:

How should we think about the “new stimulus” – the numerous projects supposedly approved by the NDRC on September 5th and 6th worth more than RMB 1 trillion? How much is new and how does this compare with the RMB 4 trillion package in 2008-09? Well, that is what we call a bit of make-believe. Sure, the weak August data seem to have prompted more policy actions by various government agencies and we expect better implementation and coordination as well. But a closer look at the newly announced approvals shows that these projects have been approved in the past 2-3 months, some as early as April and May, and most of these projects are part of the local governments’ 12th Five Year Plans (see Table 1 for the details). In other words, many readers believed that the government suddenly rolled out a RMB 1 trillion stimulus package in the past week ahead of the weak August data, but the truth is that the NDRC just suddenly PUBLISHED the project approvals of the past few months, perhaps to demonstrate that the government’s policy support in the form of infrastructure investment has already been underway.

Which leads me to think that Beijing is about to see a level of pressure they had not previously planned on, and certainly did not want in the run up to the handover.  A choice that is in essence one of (1) increase the level of infrastructure in vestments to epic proportions or (2) go back to the drawing board on how to drive consumers domestically economy.

*NOTE: in both bank reports, they make a reference to a rebound in real estate, and I personally believe that the real estate story that dominated China’s headlines for 6-8 years is largely dead.  Or at least is going to have to go through a major recalibration for it to be the fuel.  Two conversations with real estate agents highlighted this.  The first in Singapore, where we were shown around for 5 days be an agent from China whose phone was ringing OFF THE HOOK, and nearly every property we went to was stocked with mainland buyers in the showroom.  which was validated by a second conversation by another agent, this one a friend, over coffee who said her business has largely dried up because “Mainland wealthy are not buying property in the mainland anymore”.

Both comments and pings are currently closed.