Page 174 - 2018 White Paper on the Business Environment in China
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8 White Paper on the Business Environment in China
coming decade. They said China’s housing market was because then they will have no revenue,” he added.
becoming overheated. Some cities were seeing double- Many Chinese local governments are dependent on
digit YoY growth as investors search for yet another land sales to meet their budget requirements. Head
market in which yield is going up. According to the China Research at Savills James MacDonald explained,
National Bureau of Statistics, new home prices rose “If prices go too far one way, the government will
on average 9.2 percent year-on-year across China’s 70 introduce new policies” (Yang).
major cities. Shanghai home prices were 31.2 percent
year-on-year, while those in second-tier city Xiamen The housing tightening measures put in place by local
have rose 43.8 percent in 2015 (Hsu). governments ended up having little effect in the new
year. The housing sector was back to its normal bullish
After years of loosening restrictions to jumpstart state by March 2017. New homes and land sale revenues
housing markets, more than 20 local governments climbed by 23 percent over February’s 13 percent
attempted to fight back against the excessive bidding growth. Medium to long-term household loans grew by
wars through regulations. Beijing, Shenzhen, and 800 billion yuan in the same month, the quickest monthly
Suzhou increased down payment requirements up to grown on record. Fitch Ratings pointed out that credit
35 percent for first homes and 70 percent for second growth clearly outpaced GDP by a factor of 50 and 100
homes. Guangdong cities Zhuhai, Dongguan and Fuzhou percent even with more modest growth targets for the
limited home purchases to a maximum of two homes. year, “The rate of credit growth implies a further rise in
Guangzhou, Xiamen and Wuhan tried to cool the property leverage across the broader economy this year, despite
market with higher down payments and reductions to the authorities’ acknowledgement of these growing
the number of homes residents can buy. New measures financial risks” (Letts).
in cities across China continue to be announced (Hsu).
China’s real estate investment growth sped up again
By October of 2016, Bloomberg compared China’s in June after slowing a bit in May 2017. The area of
housing market to the Bermuda triangle for economists: property sold increased 16.1 percent from January to
”Time and again the smartest forecasters wade in only June from the same period in 2016, up from 14.3 in the
to get it wrong.” The rapid price gains in the biggest first three months of the year. Sales grew 21.4 percent in
cities merely reflected the underlying demand and a June alone, more than doubling the increase in May. New
supply shortage—fundamentals that are very different construction starts measured by floor area increased
to the kind of credit-fueled property boom-and-bust 10.6 percent in the first half of 2017. Household loans
cycle seen elsewhere. “The difference between over rose to 738.4 billion yuan in June, up from 610.6 billion
investment versus mismatch is the single most important yuan in May. Growth in inventory floor area in the first
thing to keep in mind when thinking about China’s half was 9.6 percent lower than a year earlier (China
property sector, as these two views have vastly different Property Investment).
implications for investment and government policy,”
wrote Larry Hu, Head of China Economics at Macquarie Predicting the bursting of China’s housing bubble
Securities Ltd (Han). seems to be a fool’s errand. Construction companies,
however, are apparently hedging their bets if two
Then, prices of newly built residential properties recent deals are indicative. A UK housing association
dropped between 0.1 and 0.4 percent in December signed a landmark joint venture deal worth over 22
2016 from the previous month in 12 out of 15 “hotspot” billion yuan with a Chinese state-owned construction
cities, according to data released by the National company in December of 2016 to build 25,000 modular
Bureau of Statistics. Although many analysts expect homes over five years. Your Housing Group agreed
property prices to fall at most 5 per cent year on year to partner with China National Building Material
in the current downturn, local governments were ready Company to build the homes alongside WeLink, a
to move to avoid sharper crashes. “Local governments renewable energy company (Bury). The next month
do not want prices to decrease too much,” said Mizuho Israel and China agreed on an agreement that paved
Securities Asia Chief Economist Shen Jianguang. Shen the way for 6,000 Chinese construction workers to
said the city and regional governments restrict land work in Israel for six months. There were an estimated
supply to prop up property prices if they fall too quickly. 235,000 construction workers in Israel in 2016. About
“The local government cannot endure less construction 3,500 of them were from China (Keinon).
174
coming decade. They said China’s housing market was because then they will have no revenue,” he added.
becoming overheated. Some cities were seeing double- Many Chinese local governments are dependent on
digit YoY growth as investors search for yet another land sales to meet their budget requirements. Head
market in which yield is going up. According to the China Research at Savills James MacDonald explained,
National Bureau of Statistics, new home prices rose “If prices go too far one way, the government will
on average 9.2 percent year-on-year across China’s 70 introduce new policies” (Yang).
major cities. Shanghai home prices were 31.2 percent
year-on-year, while those in second-tier city Xiamen The housing tightening measures put in place by local
have rose 43.8 percent in 2015 (Hsu). governments ended up having little effect in the new
year. The housing sector was back to its normal bullish
After years of loosening restrictions to jumpstart state by March 2017. New homes and land sale revenues
housing markets, more than 20 local governments climbed by 23 percent over February’s 13 percent
attempted to fight back against the excessive bidding growth. Medium to long-term household loans grew by
wars through regulations. Beijing, Shenzhen, and 800 billion yuan in the same month, the quickest monthly
Suzhou increased down payment requirements up to grown on record. Fitch Ratings pointed out that credit
35 percent for first homes and 70 percent for second growth clearly outpaced GDP by a factor of 50 and 100
homes. Guangdong cities Zhuhai, Dongguan and Fuzhou percent even with more modest growth targets for the
limited home purchases to a maximum of two homes. year, “The rate of credit growth implies a further rise in
Guangzhou, Xiamen and Wuhan tried to cool the property leverage across the broader economy this year, despite
market with higher down payments and reductions to the authorities’ acknowledgement of these growing
the number of homes residents can buy. New measures financial risks” (Letts).
in cities across China continue to be announced (Hsu).
China’s real estate investment growth sped up again
By October of 2016, Bloomberg compared China’s in June after slowing a bit in May 2017. The area of
housing market to the Bermuda triangle for economists: property sold increased 16.1 percent from January to
”Time and again the smartest forecasters wade in only June from the same period in 2016, up from 14.3 in the
to get it wrong.” The rapid price gains in the biggest first three months of the year. Sales grew 21.4 percent in
cities merely reflected the underlying demand and a June alone, more than doubling the increase in May. New
supply shortage—fundamentals that are very different construction starts measured by floor area increased
to the kind of credit-fueled property boom-and-bust 10.6 percent in the first half of 2017. Household loans
cycle seen elsewhere. “The difference between over rose to 738.4 billion yuan in June, up from 610.6 billion
investment versus mismatch is the single most important yuan in May. Growth in inventory floor area in the first
thing to keep in mind when thinking about China’s half was 9.6 percent lower than a year earlier (China
property sector, as these two views have vastly different Property Investment).
implications for investment and government policy,”
wrote Larry Hu, Head of China Economics at Macquarie Predicting the bursting of China’s housing bubble
Securities Ltd (Han). seems to be a fool’s errand. Construction companies,
however, are apparently hedging their bets if two
Then, prices of newly built residential properties recent deals are indicative. A UK housing association
dropped between 0.1 and 0.4 percent in December signed a landmark joint venture deal worth over 22
2016 from the previous month in 12 out of 15 “hotspot” billion yuan with a Chinese state-owned construction
cities, according to data released by the National company in December of 2016 to build 25,000 modular
Bureau of Statistics. Although many analysts expect homes over five years. Your Housing Group agreed
property prices to fall at most 5 per cent year on year to partner with China National Building Material
in the current downturn, local governments were ready Company to build the homes alongside WeLink, a
to move to avoid sharper crashes. “Local governments renewable energy company (Bury). The next month
do not want prices to decrease too much,” said Mizuho Israel and China agreed on an agreement that paved
Securities Asia Chief Economist Shen Jianguang. Shen the way for 6,000 Chinese construction workers to
said the city and regional governments restrict land work in Israel for six months. There were an estimated
supply to prop up property prices if they fall too quickly. 235,000 construction workers in Israel in 2016. About
“The local government cannot endure less construction 3,500 of them were from China (Keinon).
174
