Property slump hampers China’s economic recovery
China’s economic recovery is being weighed down by a worsening property slump, with the latest data likely to show little sign of a rebound in growth.
Official figures scheduled for release today are expected to show only moderate increases in industrial output, retail sales and fixed-assets investment in July. The contraction in property investment likely worsened, with fears of a debt crisis at a major developer and a further decline in housing sales holding back a rebound in the sector.
Swaths of the country were also hit by heavy rains and deadly floods, hindering construction activity last month.
The weak data will likely put pressure on Beijing to add more monetary or fiscal stimulus after a fairly muted response from officials so far. Latest lending data showing new loans plunging to a 14-year low in July spurred calls for more monetary easing, including a reduction in the amount of cash banks must hold in reserves.
On interest rates, however, the People’s Bank of China still faces constraints from a weak yuan. It’s likely to keep a key policy interest rate unchanged today, according to economists surveyed by Bloomberg, even though deflation was evident in the economy last month.
“With CPI falling to deflation, exports contracting further and property sector still struggling, we see incentive for the government to make full use of the fiscal space under the approved budget to stabilize growth,” Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered, wrote in a note.
Today’s report is expected to show that property investment contracted further in July, taking the decline in the first seven months of the year to 8.1% compared with the same period last year, according to economists surveyed by Bloomberg. That’s a worsening from the 7.9% drop in the first six months of the year.
The operating conditions for real estate developers are yet to improve. The value of new-home sales by top builders fell by the most in a year in July even though more cities loosened purchase curbs. That’s dealt a blow to developers who need cash to alleviate a multiyear credit crisis.
Country Garden, once China’s largest private-sector developer by sales, is on course to join a slew of defaulters such as China Evergrande Group if it doesn’t make coupon payments due last week on two dollar bonds within a 30-day grace period.
“We think the pressure along the real estate value chain such as sales, land acquisition and construction may continue to weigh on economic growth,” China International Capital Corp. analysts including Zhang Wenlang wrote in a note last week.
Fixed-assets investment, which includes investments in property, infrastructure and manufacturing, is projected to increase 3.7% in the January-July period, at a similar pace as in the first half of the year.