Okay.
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Chinese Economics Thread
- Thread starter Norfolk
- Start date
Lets get this straight:
1) you asked me 18 months ago what I thought the priorities were;
2) I stated clearly (with screenshots/quotes) that LGFV debt relief is a priority.
3) In Nov 2024, Lan Fo'an comes out with a 12 trillion LGFV debt swap plan.
And you claim that central government doesn't share "my priorities" because you-were-too-lazy-to-look-up-what-I stated-in-the-first-place-so-instead-you-make-up-shit-about-what-I-wrote?
Got it. Intellectual Honesty.
It's gonna go lower. I don't really care what they say, it's obvious from what they do that they just don't want the RE market to fall too fast. What they're doing is not enough to stop the RE market from going lower. They have at their disposal the resources to do more as you've advocated many times before, but they're not doing it despite saying they'd want to rescue the RE sector, to stop deflation, etc.
I think the key difference in opinion is this: you seem to think that the explanation is that they don't actually understand the consequences of their actions (or inactions), i.e. they don't understand that what they're doing is not enough to accomplish their stated goals. I believe they do. I believe that the explanation is that they don't actually care to stop those things, they just want to manage the RE crash and mitigate deflation until other growth factors can take over. When that happens, citizens' wealth will increase again and issues with consumer confidence and deflation will take care of itself.
Whether you agree with this assessment is inconsequential. None of us can prove what the true intentions of the Chinese state is. What we can do though is to make predictions. I believe the Chinese government's line of thinking and action are as stated above and I believe them to be correct. As such, I predict that the RE market will continue to fall, but at a slower rate, until ~2028-2030. By then, newer industries will have grown sufficiently for the populace's wealth to again increase at a fairly rapid and steady pace, both directly through employment and wages and indirectly via stock market participation. Consumer confidence will be recovered by then and deflation will be gone. The RE market will never truly recover, it'll remain anemic even after it stops falling.
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What you're saying is not different from what I've said:
The issue as I stated is that they would prefer to have real estate stabilize but they overarchingly prefer that they do not stimulate so hard/quick that they create another real estate bubble. Hence the easy button of flooding credit is not available. The dilemma is to thread the needle of the appropriate size/type of real estate stimulus to achieve the outcome as I stated above. The issue is not 1) a lack of resources as you correctly point out; and is certainly not 2) they don't want to do it as some here incorrectly says.
The stimulus measures In late 2024 through today has been effective at putting a floor on the economy but as I also stated -15% in real estate is not sustainable so they are very interested in stabilizing it. They've that has proven to be insufficient so far, which is why they will continue rolling them out.
I am not saying that at all.
They are trying to figure out what is the right tool.
I'll tell you right now there are 3 options on the table: 1) Mass scale repurchase of existing inventory of completed/unsold homes in Top 50 cities (where population inflows continue to happen) + leasing them out as public housing for lower income / younger citizens; 2) Providing additional loans for real estate developers (expansion of the existing White List program); 3) Interest rate subsidy for homeowners.
Option 1 - they already allowed LGSBs to be used by local governments to do this, but the local government officials have to take responsibility for life - meaning nobody will take any risks with their political career.
Option 2- clearly not interested in bailing out the developers but this isn't even that important anymore as some 80% of top 100 developers have gone bankrupt.
Option 3 - the recent Bloomberg article is reflective of active policy decisions.
Either way I would expect something policy to come out over the next 6-12 months on real estate.
Nothing I've said here would suggest otherwise.
OK, I don't think we disagree on much then. The only significant thing that we perhaps disagree on, and evidently the government doesn't really know the answer either, is how much support the RE market needs. I don't think any specific number like 0%, -5%, or -15% is of particular import, the important question is will the RE market crash prevent China's goal of continuing innovation to move onto more advanced industries. So long as the progress for that is not significantly dragged down then I think they'll just let it run its course.
A lot of this comes down to expectations management. The goal is to manage expectations such that housing will be for living (stable prices) and not for speculation (+20%) nor will it be an active burden (-20%) on household balance sheets (and a drag for consumption/childbirth).