Headline macro-economic data for August fell sharply, but a closer reading of the numbers suggests that worse may be to come, with the full impact of weak credit growth on the real estate sector yet to be felt.
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11 Sep 2014
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Headline macro-economic data for August fell sharply, but a closer reading of the numbers suggests that worse may be to come, with the full impact of weak credit growth on the real estate sector yet to be felt.
Although home sales in the 42 cities monitored by China Confidential saw a seasonal uptick in the first week of September, YoY growth remained negative.
The evidence suggests that much of the weakness seen in July continued throughout August. Though there are some signs of life in the real estate sector, we continue to believe that, without substantial government action, a significant uptick in growth remains unlikely.
1H14 financial results for China’s largest developers reveal faster debt accumulation, declining profit margins and rising inventories, suggesting that real estate sector risks are starting to rise.
Coal consumption at independent power plants and steel output at China’s largest mills fell sharply in the second half of August, suggesting weakness in the industrial sector.
More Chinese banks are reducing mortgage rates for first-time buyers, but the impact on home sales has, so far, been muted.
Home sales rose on a sequential basis and the recent fall in home prices moderated in August. While the improvement appears to be largely seasonal, there are signs that mortgage rates for first-time buyers are being reduced, which could drive a more sustained recovery.
Despite the fall in home sales this year, our analysis suggests that China’s housing market is undersupplied rather than oversupplied.
Sluggish July data and initial indications from our proprietary surveys in August appear to have borne out our prediction that the apparent uptick in Chinese economic growth seen in June would prove short-lived.
Chinese freight activity showed further signs of sequential recovery during the first three weeks of August but remained subdued on an annual basis, according to China Confidential’s latest survey of 200 logistics firms nationwide. The outlook improved significantly, in anticipation of a seasonal surge in activity in September.
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