Ex­pert sees soft land­ing in end to real es­tate boom

As long as job mar­ket thrives, no rea­son to worry, econ­o­mist says

China Daily (Canada) - - BUSINESS - By EMMADAI in Hong Kong emmadai@chi­nadai­lyhk.com

Al­though real es­tate data con­tinue to show stag­nant growth and home prices re­main un­der pres­sure, China is still on track to carry out struc­tural re­forms, and a so-called “hard land­ing” for the re­cent property boom is un­likely, ac­cord­ing to an econ­o­mist from DBS Bank.

“Lots of Western econ­o­mists in­sist on a pes­simistic view of China be­cause of bleak data so far this year,” said Chris Le­ung, ex­ec­u­tive di­rec­tor and se­nior econ­o­mist of DBS Bank (HK) Ltd. “How­ever, we be­lieve there is no need to ex­ag­ger­ate risk. China’s growth rate has been grad­u­ally slow­ing for 12 quar­ters in a row. If this is not a soft land­ing, then what is it?”

Le­ung stressed that de­cel­er­a­tion is in line with the cen­tral govern­ment’s plans, call­ing it the cost of the struc­tural re­form it has vowed to carry out. “The lead­er­ship is de­ter­mined to sac­ri­fice growth for re­form. Un­like many, we don’t think the PBOC is go­ing to lower in­ter­est rates or cut RRR (re­serve re­quire­ment ra­tios) in the sec­ond half. There will not be coun­try­wide stim­u­lus again. The Chi­nese govern­ment has tried and ruled it out,” Le­ung told a group of Hong Kong re­porters on Thurs­day.

“As long as the la­bor mar­ket is healthy— where we do see a num­ber of new jobs — the econ­omy is fine,” he said, adding that re­cent mini-stim­u­lus ef­forts fo­cus­ing on in­vest­ment in ru­ral ar­eas were not as­so­ci­ated with any shift in cur­rent mon­e­tary pol­icy.

On June 6, the In­ter­na­tional Mon­e­tary Fund trimmed China’s eco­nomic growth fore­cast for 2015 from 7.3 per­cent to 7 per­cent, lower than the 7.5 per­cent govern­ment tar­get. In the first quar­ter, China’s econ­omy ex­panded at an an­nual pace of 7.4 per­cent, the slow­est in 24 years.

The People’s Bank of China, the cen­tral bank, has ex­tended RRR twice this year to aid small en­ter­prises and busi­ness in the coun­try­side. Stan­dard Char­tered Bank, one of the banks that an­tic­i­pates a loos­en­ing mon­e­tary pol­icy, re­ported on Wed­nes­day that the third quar­ter will see mas­sive

Lots of Western econ­o­mists in­sist on a pes­simistic view of China be­cause of bleak data so far this year. ... China’s growth rate has been grad­u­ally slow­ing for 12 quar­ters in a row. If this is not a soft land­ing, then what is it?”

CHRIS LE­UNG, EX­EC­U­TIVE DI­REC­TOR AND SE­NIOR ECON­O­MIST, DBS BANK (HK) LTD

boost mea­sures to GDP growth.

“China’s prob­lem is more struc­tural, far be­yond what mini-stim­u­lus can solve,” Paul Chan, Asia ex-Ja­pan chief in­vest­ment of­fi­cer for In­vesco HK Ltd, told a me­dia brief­ing on Thurs­day in Hong Kong.

“As the econ­omy tries to trans­form from ex­port-driven to do­mes­tic con­sump­tion­driven, the yuan is no longer cheap, and the la­bor force is ag­ing,” he said. “Do­mes­tic re­form is very hard to im­ple­ment. It’s mov­ing money from one sec­tor to an­other. It’s a zero-sum game.”

In re­sponse, DBS’ Le­ung said trans­for­ma­tion needs time. “Many ex­porters I know said this year is much bet­ter than 2013. People have been work­ing on up­grad­ing, though data have said noth­ing about it. We ex­pect in the sec­ond half, at least ex­ports will start to pick up.”

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Le­ung quashed wor­ries about a property mar­ket melt­down, say­ing China’s mort­gages are only 18 per­cent of its GDP, while that rate was around 100 per­cent in the US be­fore the fi­nan­cial cri­sis hit in 2008.

“The Chi­nese pre­fer to bor­row from friends in­stead of banks. The US ex­pe­ri­ence is not ap­pli­ca­ble every­where,” he said.

But he did say that over­sup­ply is as real as such ghost towns as Er­dos. “Property prices have started to tip down since the be­gin­ning of this year. The con­sol­i­da­tion will last for sev­eral years. Smaller de­vel­op­ers will be squeezed out,” he said.

“But the sit­u­a­tion in big cities is dif­fer­ent from in smaller towns, and so are mar­kets for big and small homes. As long as sales vol­ume rise with prices down, the bub­ble is un­likely to bust.”

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