Down she goes and where it stops nobody knows. Chinese August data is out. It is OK at the headline level but downright disastrous at the commodities level.
Headline data all missed expectations. Year to date fixed asset investment was OK at 8.9%, industrial production good at 13.1% and retail sales at 19%. But when we look at it in year on year terms industrial production falls to 5.3% and retail sales to just 2.5%:
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It’s when we dig into the data that things fall apart. We already know that Chinese new home price gains have almost stalled out. Floor area starts are now following in train, down 17% year on year:
And year to date down 3.2% with much worse ahead:
Completions are still booming at 26% and developer land sales are still dropping 10%. The property stimulus pig-in-the-python has been shat out.
Forward-looking indicators are even worse, according to Nomura:
New home sales growth data for WIND’s 30-city sample serves as a good tracker of official NBS new home sales growth, thanks to their high correlation coefficient of 0.92 during the period from January 2018 to July 2021. Based on our estimates, year-on-year growth in new home sales (hereinafter in volume terms for new home sales) for the WIND 30-city sample declined further to -26.6% for 1-11 September from -22.5% in August and -4.4% in July (Figure 1), while its annualized 2y-o-2y growth also fell to -10.3% in month-to-date September from -5.2% in August and 3.4% in July (Figure 2).
A breakdown of the data shows that low-tier cities fared much worse: developers’ net bond financing fell into deeper negative territory in August in both onshore and offshore markets, pointing to a further tightening in developer financing conditions.
According to WIND, growth in land sales in value terms in the 100-city sample, a proxy for land purchases by property developers, slumped to -90.4% y-o-y during 1-12 September form -65.0% in August. In volume (floor space) terms, it also dropped sharply to -38.3% y-o-y from -21.9% (Figure 6).
…we believe the ongoing property curbs are unlikely to be eased in the near term, as Beijing has attached national strategic importance to reining in property bubbles, directly intervening in credit supply for the property sector, leaving it little room to dial back these curbs.
The likelihood of Beijing easing its property curbs is quite low. Actually, despite the worsening property sector, a number of cities have further tightened their curbs over the past two weeks.
This construction BUST is enabling China to crash its steel output, hitting a new low of 83.4mt tonnes in the month, down 12.2% year on year and well below 2019 as well:
The only saving grace is that EAF steel appears to have taken the brunt of the shutdowns, probably because they are easier to shut off and restart:
In short, these steel output cuts have absolutely NOTHING to do with environmental controls.
Cement production improved marginally but is also soft:
In short, the developing hard landing in Chinese property development and associated inputs is screamingly obvious to anyone that cares to look.
And there is no end in sight.