Goldman Sachs on China, in brief from a video interview on CNBC, I’ve pulled out some points:
- consumption strength may be related to the singles day sales (November 11)
- remains to be seen whether this is a sustainable recovery in consumption
- the weakness in the property sector and also for investment outside of a property may be telling us all the headwinds in the property sector and local government financing vehicles are still strong
- policy makers cannot relax … more work needs to be done
- a very important aspect of the Chinese economy right now in many parts of the economy … we have a sort of self-fulfilling negative loop that’s ongoing
- if property prices are falling … is probably not the best time to buy … a buyer will want to wait until prices bottom to buy property and if that happens then the property price may decline further so there is a self-fulfilling negative feedback loop at work
- how do we get out of that that’s where we really need government policy, whether a clear road map how do we manage the property sector, how do we manage the growth slowdown … expanding central government balance sheet to concretely show the market that this is the how we’re going to address these issues … that will get us out of that negative feedback loop because otherwise it can keep going
- and slow growth becomes a slower growth and I think that’s something the policy makers would not want to see
- right now the property sector has two parts … if we’re talking about the old model that the develop developer buying land and pre-sales and the sort of the commodity housing we’re used to for the past 20 years, I don’t think much has changed and there’s still a lot negative news to come out because if you think about starts are down 60% but the total new homes under construction is only down 13% … at some point a total new home under construction should be consistent with the new starts and that should be a lot lower than where it is now … so I think there’s still more deceleration or decline to come
- but there’s also this new part of a property sector the government is trying to leverage to smooth that slowdown this is the where public housing Urban Village renovation and the 1 trillion yuan reported PSL (supplementary lending) the central go government may provide that’s where support is coming in
- we have to separate the two parts, if you think about the old model and the private developers I don’t think we’re out of the woods
This article was written by Eamonn Sheridan at www.forexlive.com.
