China: Smash property stimulus!

The People’s Daily, the Chinese Communist Party’s official outlet, has attacked those calling for property stimulus:

“We must be on guard against the ulterior motives of those who are singing short the market – to destabilise the market, mislead policy and satisfy their selfish interests.”

Some analysts have urged more aggressive action such as an interest-rate cut or a loosening of city-level restrictions that prevent buyers from purchasing second and third homes

“This way, developers can continue to enjoy profits from high prices and extend their fragile funding chains and house hoarders can also see the wealth they’re sitting on keep increasing,”

“As for foreign capital planning to speculate on the bottoming out of China’s property market, the practice of singing short the market while actually taking long bets has been their favourite trick for many years and is no longer surprising.”

I’ve noted many times how aggressive and wrong many foreign banks have been in calling for rate cuts, most prominently ANZ and HSBC. Perhaps they’ll get the message now. I’d recommend it given how nasty the regime is getting. From the FT:

In recent weeks, the president’s signature campaign against official corruption appears to have spilled into something more significant and potentially destabilising for the increasingly autocratic regime.

…The official line is that Mr Xi is serious about tackling corruption and blind to where he might find it.

But in Beijing’s political circles, many are muttering about the vindictive nature of this purge and the autocratic turn that has accompanied it.

Mr Xi is targeting a broad swath of individuals, families, factions and societal forces that do not answer directly to him

Journalists, lawyers, non-governmental organisations, activists and other vestiges of civil society have all been subject to greater controls and repression over the past year.

Most telling have been the harsh prison sentences handed down to transparency advocates for their peaceful anti-corruption campaigns and calls for party officials to disclose their assets.

The message is clear: the authority to decide who is corrupt and who is not is the exclusive domain of Mr Xi and his closest allies.

Perhaps. But Xi has also said that without corruption reform the CCP will die. Given corruption goes hand-in-glove with China’s old investment-driven growth model that means unless the economy is reformed then the CCP will die. As Michael Pettis has argued, you can’t get that reform without the centralised power to roll over vested interests. Power in Xi’s hands is not all bad for the Chinese.

Finally today, the news on China’s property market is further deterioration. From BeyondBrics:

Home sales from the 42 cities, monitored by China Confidential, fell 16 per cent in the first 15 days of the month from the same period in May. This followed some signs of recovery in May, when transactions rose 4 per cent month on month.

On a year on year basis, property unit sales fell 29 per cent, representing a deepening of the declining trend seen in May – when sales were down 14 per cent year on year – and in April, when sales were down 23 per cent.

The weakening sales in the first half of June was seen across city tiers, with transaction volumes falling 28 per cent, 28 per cent and 26 per cent in first, second and third tier cities respectively.

With newly-built developments coming on stream as sales ease, the amount of unsold property remains at elevated levels.

This correction is far from over and those looking for a steel output bounce in the second half will very likely be wrong. As if to underline that point, Chinese markets are reversing some of yesterday’s gains with rebar futures down 15 points and Dalian iron ore futures down 6 points.