Phat dragon

27 October 2011

a weekly chronicle of the Chinese economy

The front page of the China Daily online carried the news. Premier

Wen is all over the party mouthpiece (and the CSJ) arguing that China will maintain control of the intensity, pace and focus of economic regulations and properly fine-tune economic policies. Back on August 12 Phat Dragon highlighted Wens rhetorical shift from a prudent and effective position to a prudent, flexible and forward looking stance. Less than three months later he is on the record arguing that while keeping consumer prices stable will remain the governments top priority, ... , policymakers should be sensitive to signs of new problems and make decisive moves accordingly. The government will maintain reasonable growth in bank lending and boost structural tax reductions, ... , support should be given to small and medium-sized enterprises . China will also maintain consistency and stability in its export policies to keep exports balanced and growing steadily.

Chinas policy stance & housing sales

120 100 80 60 40 20 0 -20
Tight Sound, Easing bias Sound, tightening bias Sound, tightening bias Tight Appropriately Tight Appropriately Loose Prudent

%yr
Housing sales (lhs) Loan growth (rhs)
Sources: Westpac Economics, CEIC

%yr

35 30 25 20 15 10 5 0

-40 Mar-01

Mar-03

Mar-05

Mar-07

Mar-09

Mar-11

The new language is an interim position statement as the authorities

Starts lead completions by 1 to 2 years

75 60 45 30 15 0 -15
Sources: CEIC, Westpac. Underlying data in sqm. 12 month average of raw oya growth rate.

move towards the early December Economic Work Conference, the traditional moot that sets the agenda for the forthcoming year. The reference to decisive moves in relation to new problems, coupled with a line on maintaining external stability [aka kissing visible CNY appreciation goodbye for a while], is a clear enunciation of the fact that there is a heightened level of administrative vigilance regards emergent cyclical vulnerabilities. Where Wen deviates from the general to the specific (something one wishes the Europeans would do a little more of, and in a hurry) he is clearly highlighting the need for policies that support economic segments that are in need of greater structural emphasis. SMEs (particularly innovative start-ups, noting that Wen chose a high tech incubator hub in Tianjin to make his important speech) are an obvious focus, both from a taxation and a credit perspective. Whether the auto industry receives policy support is a vexed question, depending upon whether you view cars as a consumer good, a heavy industry or a source of urban congestion, pollution and energy demand. Phat Dragons thought is that the consumer side of the coin will be the most important and subsidies for small, eco friendly vehicles will be instituted.

%yr Starts 20mths prior Completions

%yr

75 60 45 30 15 0 -15

-30 -30 Aug-99 Aug-01 Aug-03 Aug-05 Aug-07 Aug-09 Aug-11 Aug-13

Chinas international trade

160 120 80 40 0 -40 -80 Jan-01 Jan-03
Exports %6mth saar Imports %6mth saar

%
Sources: CEIC, Westpac Economics.

160 120 80 40 0 -40 -80

There is no sign yet that the leadership wants to indulge in the easy

pro-growth option of sponsoring private housing and thereby giving a fillip to heavy industry. The pressure will rise though with developer discounting in the off-the-plan apartment market now underway. It has reached Phat Dragons ears that developers are cutting asking prices sharply as they seek to unload inventory and boost cashflow - and buyers who paid top of the cycle prices but are yet to take possession are far from happy. With a large overhang of supply still to come on to the market, prices will keep falling through the end of the year and into next, as developers race to clear inventory and canny buyers perceive that by waiting they can attract steeper discounts. The market was last in a position similar to the current situation in the September quarter of 2008, a time when the lagged impact of tight credit policies were weighing on housing turnover and the developers were under considerable financial pressure. The Wen put came into play after a few months of pain, but it is unclear how swiftly policy would have responded if the world economy had not chosen that precise moment to go into a seizure that looked potentially fatal to the lay observer.
Economic Research

Jan-05

Jan-07

Jan-09

Jan-11

For those still recovering from the gratuitous 2008 comparison

above, Phat Dragon has the following palliative: Sino-Asian-Oceania trade finance is still OK. When Phat Dragon reports that it isnt, start hoarding drinking water and (shudder) SPAM.

Stats of the week: 75% of surveyed QQ users (Chinas #1 social

networking site) think college girls moonlighting as mistresses should be expelled from university.
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