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Why The Record Drop In Chinese House Prices Suggests Beijing Is Already In A Recession
Another month, and another confirmation that China's hard landing is if not here, then likely mere months away.
Overnight, the NBS reported that in March, Chinese house prices dropped in 69 of 70 cities compared to a year ago. According to Goldman's seasonal adjustments, in March home prices dropped another 0.5% from February, the same as the prior month's decline, suggesting that the February 28 rate cut hasn't done much to boost housing spirits.
However, it is the annual data that truly stands out, because with a drop of 6.1% this was the biggest drop in Chinese house prices in history.
To be sure, the PBOC is now scrambling to halt what, unless it is stopped, will become a full-blown hard landing in months, if it isn't already. As a result, as shown in the chart below it has recently engaged in several easing steps, with many more to come according to the sell-side consensus. So far these have failed to stimulate the overall economy, which continues to be pressured by a deflation-importing world, but have certainly lead to a massive surge in the Chinese stock market.
Incidentally, the ongoing collapse in Chinese home prices is precisely why the PBOC and the Politburo have both done everything in their power to substitute the burst housing bubble with another: that of stocks, by pushing everyone (even the illiterates) to invest as much as possible in the stock market, leading to the biggest and fastest liquidity and margin debt-driven bubble in history.
...one which has left BNP "speechless."
Unfortunately for China, as we have shown before, all Chinese attempts to do what every self-respecting Keynesian would do, i.e., replace one bubble with another, are doomed to fail for the simple reason that unlike in the US, where the bulk of assets are in financial form, in China 75% of all household wealth is in real estate.
And this is where things get scarier, because if one compares the history of the Chinese and US housing bubbles, one observes that it was when US housing had dropped by about 6% following their all time highs in November 2005, that the US entered a recession.
This is precisely where China is now: a 6.1% drop following the all time high peak in January of 2014. If the last US recession is any indication, the Chinese economy is now contracting!
So much for hopes of 7% GDP growth this year.
The good news, if any, is that Chinese home prices have another 12% to drop before China, which may or may not be in a recession, suffer the US equivalent of the Lehman bankruptcy.
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Holy crap it's much worse than 2008-2009... when China had 200 000+ protests across the country every year...
This is gonna get interesting...
At the macro level there are a few teeny weeny differences. China's economy is not 70% consumption, many house purchases in China are all cash and China has ample reserves of Fx and Gold and no debt. Other than that.........
China has no debt? I must respectfully but emphatically disagree.
Just because they have a large FX reserve that is actually the joint 401k for the CCP does not mean that the books of the national government and all levels below it are not crammed to the limit with bad paper.
They have been desperately Krugmanning away since 2008.
Yes, you're quit right and what I meant to say was China has no EXTERNAL debt. Domestic debt is easily dealt with by more QE and, as you suggest, why would they want a strong RMB.? In the competitive devaluation wars, China is not going to sit back and watch Japan and Germany undercut their exports forever. And the scale of domestic debt in China is insignificant when compared to another economy of a similar size which, taking unfunded, off balance sheet, State & Local and contingent liabilities into account (But not derivatives), has at least $500 Trillion in unfunded debt, which is also being merrily inflated away and Financially repressed back to the masses. It's all relative in today's Global Ponzi.....
FX reserves are nothing but trouble for China and of no value unless for some unlikely reason they have to protect the yuan from devaluation. The central bank has to borrow local currency at home to purchase the foreign currency. It is by no means wealth. It's just borrowings, unless one of the FX assets rises relative to the yuan and it is lucky enough to be able to sell at the time the asset is up.
+1, spot on. Wish more people would recognize this fact.
I freelance over th? internet and earn about 80-85$ an hour. I was without a job for 7 months but last month my paycheck with big fat bonus was $15000 just working on my computer from my home for 5-6 hours. Here's what i have been doing... www.globe-report.com
Time to hike rates!
We'll find out who has real money when they announce Yuan is pegged to Gold.
I don't think that is likely. The RMB would go through the roof and wreck their export business, It is likely that any Gold backibg of RMB will be implicit rather than explicit. Either way, "He who has the Gold makes the rules" and the PBOC could well have 20K Tonnes of the stuff. And counting, especially whilst it is still on sale..........
You guys kill me with these bedtime stories about this government or that government going back on the gold standard.
Why would they do that?
Are they suddenly allergic to currency manipulation where they rob individuals through devaluation?
If I can pay you with a piece of paper or a nugget of gold, which one am I going to select?
2008 was a church picnic compared to what 2015 will be.
By the end of this century...this is a prediction...concentration of wealth will be outlawed globally for corporations, governments and individuals. Banking will be a thing of the past and there will be no immoral rich fuckers to screw everything up.
… fortunately, by the end of this century, I shall be ELSEWHERE !
just make sure you are still voting!
By the end of this century, wealth will be concentrated in the hands of the dukes, counts, and marquises. You will doff your hat in respect as their golden carriage rolls by and then hurry back to your job laboring on their estates.
The European social model is regaining its old mojo and only American boys and American guns remain standing in the way of their dream of a restored aristocracy. But we will eventually win.
"The whole world united shall not prevail against her."
-- from the Vision given to General George Washington in the winter of 1779
you cannot say the "r" word, or the "n" word, or the "d" word, however, I think I am allowed to piss myself laughing at the "recovery.
" What go up 500% in short time, fall down in shorter time. "
~ Old Chinee Proverb
- Old Chinese proverb
China's out of a recession? You mean the higher stock prices signal strength in an economy in the east too? Well thank goodness at least we had a recovery!
/sarc
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