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China's economic woes persist despite recent measures

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2024-02-26

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With the Lunar New Year break over, the pain continues for China, despite the surprise rate cut last week and a solid 2.8% to 4.1% rise in the country’s stock markets.

Friday saw yet another sign of the damage the implosion black hole that is the property sector is causing, with the 0.7% fall in January being the steepest monthly fall in new house prices for 10 months.

The fall was spot on estimates from analysts and suggests the market isn’t convinced the government is doing enough to help the imploding sector, especially in new home building (which is where the oversupply is greatest).

It’s a sign of the enormity of the task that the Chinese government won’t confront head-on as it persists with fiddling at the sides - such as the record 0.25% drop in the five-year loan rate to a new record low of 3.95%.

January’s fall came before that cut was a twinkle in the eye of regulators but January did see more liquidity pumped into the country’s financial system from short-term injections by the central bank, which also lopped 0.5% off bank reserve ratios, liberating an estimated $US138 billion for banks to lend.

January’s fall was steeper than the 0.4% drop in December and the seventh monthly fall in a row. It was the biggest since last March when prices fell 0.8%, after the record 1.3% slip in February as the country emerged from the Covid lockdowns.

Prices declined at faster rates in Shenzhen (-4.1% vs -3.6% in December) and Guangzhou (-3.6% vs -3.0%), while rises moderated in Beijing (1.3% vs 1.7%), Chongqing (2.0% vs 2.0%), Shanghai (4.2% vs 4.5%), and Tianjin (2.1% vs 2.3%).

Monthly, new home prices fell by 0.3% in January, after a 0.4% decrease in December, which was the deepest fall since February 2015.

Adding to the grim news for the economy, Foreign Direct Investment (FDI) slumped 11% from January 2023 - which was a low base because of the ending of the Covid lockdowns. FDI fell $15.66 billion in January. Compared with the previous month, however, FDI surged by 20.4% because FDI was suppressed by the last Covid restrictions which were in the process of being eased. For the same reason, that’s why the Ministry of Commerce said there was a 74% jump in the number of new foreign businesses in January to 4,588.

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