The ferrous complex is still paralysed by the jaws.
However, China is going to throw the kitchen sink at property.
China is weighing a new round of measures to revive its ailing property market, a sector so central to the country’s economy that its continued slide threatens broader financial stability. Policymakers are discussing nationwide mortgage subsidies for first-time homebuyers, higher income tax rebates for borrowers and lower transaction costs to coax wary buyers back into the market, according to people familiar with the matter.
The plan, under debate since at least the third quarter, reflects growing urgency as falling sales, plunging prices and a record 3.5 trillion yuan ($492 billion) in bad loans have deepened the sector’s four-year slump. The timing and specific policies to be implemented are still uncertain, the people said.
Will it work? I doubt it.
The problem remains the same. China is attempting to address the issue with the wrong tool, in an effort to support its currency.
Fiscal incentives might work in the short term, but over the long term, it needs lower real interest rates.
Real mortgage rates are still sitting at around 4%. This is absurdly high for an asset class that is sinking at 5-10% per annum.
Not to mention an economy mired in deflation, which is lifting the debt service burden.
China should be running a negative real interest rate to aid its household sector deleveraging and to support a manageable pace of descent for asset prices.
By not doing it, it is embedding deflation and endless extend and pretend for the banking system.
Any rally in ferrous is likely to be short-lived.
