I am starting to admire this. The rebooted Chinese determination to force structural reform onto its economy is precisely the same as that needed in the “capitalist west”. It’s all about ending property capital misallocation and restoring productivity growth as the prime income driver. And it is NOT over.
First up, the grand political narrative that defends against rentier pushback is taking shape:
A commentary published widely in Chinese state-run media described President Xi Jinping’s regulatory crackdown as a “profound revolution” sweeping the country and warned that anyone who resisted would face punishment.
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“This is a return from the capital group to the masses of the people, and this is a transformation from capital-centered to people-centered,” the commentary said, adding that it marked a return to the original intention of the Communist Party. “Therefore, this is a political change, and the people are becoming the main body of this change again, and all those who block this people-centered change will be discarded.”
The opinion piece was originally published by a WeChat blogger who goes by the name “Li Guangman Ice Point Commentary.” In an unusual move that indicated official support, it was reposted online by major state-run media outlets including Communist Party mouthpiece People’s Daily, Xinhua News Agency, PLA Daily, CCTV, China Youth Daily and China News Service.
The author wrote that high housing prices and medical costs will become the next targets of the campaign.
…“The capital market will no longer become a paradise for capitalists to get rich overnight,” the commentary said. “The cultural market will no longer be a paradise for sissy stars, and news and public opinion will no longer be in a position worshiping Western culture.”
Here’s some more from the source:
At present, China is facing an increasingly severe and complex international environment. The United States is implementing increasingly severe military threats, economic and technological blockades, financial strikes, and political and diplomatic encirclement against China, and is waging biological warfare, cyber warfare, public opinion warfare, and space warfare against China, with increasing efforts to launch a color revolution against China through the fifth column within China. If at this time we still rely on the big capitalists as the main force against imperialism and hegemony, and still cater to the U.S. “tittytainment strategy 奶头乐战略”, and let our young generation lose their toughness and virility, then we will fall first without our friends, just like the Soviet Union did back then, letting the country collapse, letting the country’s wealth be looted, and letting the people fall into a deep disaster. Therefore, the profound changes that are currently taking place in China are precisely to deal with the current severe and complex international situation, and precisely to deal with the savage and ferocious attacks that the United States has begun to launch against China.
Each of us can feel that a profound social change has begun, not only in the capital circle, but also in the entertainment circle, It is necessary not only to destroy the decadent forces but also to scrape the bones and heal the wounds. It is also necessary to clean the house, freshen the air, make our society healthier, so that the main body of society can feel happy.
Obviously, we can do without the CCP propaganda and social engineering, but the policy objectives are good and the identification of the communication challenge is smart.
More to the point, this narrative and the policies that come with it are very negative for the property sector and its enormous commodity inputs. To wit, Yuan Talks:
The city of Guangzhou, capital of southern China’s Guangdong province, and the technology hub of Shenzhen tightened rules for land auctions, in the latest move to rein in surging land prices and curb speculation in the market.
Land authority in Guangzhou said that land price premium in its second batch of centralized auction of 48 land plots rescheudled on September 26 and 27 will be capped at 15 per cent, with price premium on lands in some hot areas capped at 9 per cent.
That’s significantly lower than the price premium seen in the city’s first round of centralized land auction in April, when premium on eight land plots was above 40 per cent and that for six land plots was higher than 45 per cent.
In addition, Guangzhou imposed restrictions on how many times a property developer can bid for a land plot, pledged strict inspections of the sources of property developers’ funding for land purchases as well as cap prices of homes built on the land.
Separately, the city of Shenzhen said on Monday that, in its second batch of centralized land auction to be held on September 28, land price premium will be capped at 15 per cent, sharply lower than the previous premium of 45 per cent.
Shenzhen will further lower the sales price limit of housing to stabilize the market, with sales price limit of commercial residential houses built on the batch of land is reduced by between 3 per cent and 9.2 per cent from the previous ceiling, and the sales price limit of affordable residential houses will be reduced by 2.8 per cent to 9.1 per cent from the earlier price limit.
The city’s housing regulatory also pledged to make sure property developers purchase land with their own funds and to tighten credit scrutiny of homebuilders.
The policy reform around developers has turned from trickle to deluge and it is all negative for volumes. See Vanke:
China Vanke Co., the nation’s largest listed residential developer, tumbled after reporting a fall in profit in the first half due to lower margin on projects and industrywide regulatory curbs.
…The property sector has changed profoundly, and Vanke is diverting away from a sole focus on real estate developments, adding real estate management and service business into its focus, it said in a statement Sunday.
And Evergrande again:
Wealthy investors who supported Chinese billionaire Hui Ka Yan’s empire are now paying a heavy price amid growing concern the group will struggle to repay its debts.
The sharp reversal in shares of Evergrande and its units means Hui’s friends are now facing potentially punishing losses. The developer’s shares have tumbled about 70% this year, while Evergrande Property Services Group Ltd. is 34% below its initial public offering price.
China Evergrande Group’s electric-vehicle unit said it might have to delay car production unless it can secure more capital in the short term.
The entire sector is now a bath of blood:
As resources swing to the new economy:
China expects shortages of skilled workers will worsen over time as the government develops its high tech industries, focusing attention on the need for better training and education.
The mismatch between jobs and skills will become the main problem in the labor market, Gao Gao, deputy secretary general of the National Development and Reform Commission told reporters Monday following the release of a new five-year employment plan through 2025. While the share of skilled workers has risen to about 30% of workforce, it remains low compared with other manufacturing powerhouses, he said.
As the old economy collapses into a hard landing I still expect another broad credit easing and policy panic. But, it appears that is what it will take to turn this ship around. And, the risk case that they actually see the reform process through crashing old economy growth is also rising.
Stay short iron ore.