Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
AI Mega-trend Tech Stocks Buying Levels Q2 2020 - 1st Jun 20
M2 Velocity Collapses – Could A Bottom In Capital Velocity Be Setting Up? - 1st Jun 20
The Inflation–Deflation Conundrum - 1st Jun 20
AMD 3900XT, 3800XT, 3600XT Refresh Means Zen 3 4000 AMD CPU's Delayed for 5nm Until 2021? - 1st Jun 20
Why Multi-Asset Brokers Like TRADE.com are the Future of Trading - 1st Jun 20
Will Fed‘s Cap On Interest Rates Trigger Gold’s Rally? - 30th May
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

Timing the China Property Crash

Housing-Market / China Economy Feb 28, 2011 - 05:35 AM GMT

By: Mike_Shedlock

Housing-Market

Best Financial Markets Analysis ArticleInquiring minds are investigating Analysis of the Chinese Property Bubble by Huw McKay, Senior International Economist, for Westpac Bank.


China: strong for now but imbalances loom

The strength in China’s January trade data was absolutely remarkable. Going back to 2000, the level of unadjusted exports or imports in a January month has never exceeded the level in the immediately prior December: until now. There are deep-seated seasonal reasons why this just shouldn’t happen - and history had never offered an exception to the rule. So, clearly, seasonally adjusted month-on-month growth was huge - around 12% for exports and 16% for imports. Iron ore import volumes were a monthly record by almost 7%. Sure, global manufacturing had a strong end to the year and business surveys had a respectable January, but this sort of implied demand is bordering on ridiculous. While three consecutive months of triple digit growth in imports to the special economic zones through Q4 argue the export numbers should not be a total surprise (at least on the supply side, never mind who the customers are), we remain astonished by the import surge.



Yes, commodity prices rose and some public and private discretionary inventory building ahead of the lunar new year was likely underway, but neither factor goes all that far in explaining the level of apparent demand. Getting away from levels and getting back to growth, at 51%yr imports are as strong as they were in the first half of 2004, when the authorities saw fit to clamp down on out of control heavy industrial investment, overall fixed investment began the year up 53% and 24 of 31 provinces experienced power shortages as an overloaded grid strained under the pressure. Is that a good description of the current climate? No, not really, but to say that the economy has good momentum opening the year would be an egregious understatement.

So, the Chinese economy is expanding at a rapid pace – for now. However, the imbalances that have emerged in the policy induced recovery phase have not disappeared. In fact, they have been inflamed. When real estate policy began to be tightened in the first half of 2010, the volume of sales moved broadly sideways (with regional variation), but the volume of new starts continued to rise .


The implications of this are many. One, bringing these projects to completion will generate very significant demand for raw and intermediate materials. This should keep commodity markets well supported in coming months - even if a pull-back from extraordinary January import levels must be assumed, and the fact that base metals prices are extremely elevated already. But the stronger implication is that once these starts do reach completion it seems extremely unlikely that the level of sales will be high enough to comfortably absorb the new supply. That implies that the developer industry will run into some trouble later this year and into early 2012 – and that will impact on activity levels in the construction sector, with predictable flow-on effects for upstream industries inside China and out.

Estimating a precise lead time between starts and completions is not easy. The private construction cycle is young enough that it has yet to establish firm “rules of thumb” for forecasters to adopt. Chinese housing ownership reforms date back to just 1998 and the explosion in private sector housing activity dates to only 2003. We have a single national downturn to ponder (late 2008) in addition to the Shanghai experiment of 2004/05. While the cycle does appear to be settling into more of an established groove, we are not at a point where we can be confident about the leads and lags. Our best efforts suggest that a lead period of between 1½ and 2 years is a reasonable if imprecise guide. As the surge in starts dates back to the middle of 2009, the first “cluster” of completions should be hitting the market in physical form later this year, and in “off-theplan” form somewhat earlier. But the post-April rise in starts is a story for early-mid 2012. Where will sales demand be at this time against a backdrop of monetary tightening? Not high enough.

It should be emphasized that we are talking about new supply coming to market. Secondary stock is to be added to the amount of housing available for sale. When the volume of sales fell below completions in late 2008 (Chart 2) developers were forced to discount aggressively to offload their properties. In the absence of a supportive policy shift as part of the second stimulus package, realised prices could have fallen by 20-30%, essentially consuming the entire margin rumoured to be enjoyed by the luxury development sector. The policy response should events play out as expected is a vitally important question. On the one hand, history argues that the “Wen put” (an analogue of the legendary “Greenspan put”) will again be exercised, thereby sparking another wave of subsidised housing speculation and downstream demand for the heavy industrial sector. On the other, the administration’s oft-stated and pragmatic desire to tackle housing affordability concerns, and their desire to ignite the latent consumption impulse, might argue for a very public sacrifice of the developers. Taken together with the current focus on inflationary risks – both immediate and medium term – and a disinflationary trend emanating from residential real estate doesn’t appear to be wildly inconsistent with the broader aims of policy. Whatever balance the policymakers strike, the implications will resonate far afield.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2011 Mike Shedlock, All Rights Reserved.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules