June 19, 2020

News in Charts: China’s reluctance to declare construction as ‘complete’ helps mask housing problem

by Fathom Consulting.

Over the years, Fathom Consulting has created a wealth of proprietary indicators, a handful of which were released on Refinitiv’s Chartbook last year. As part of a major expansion of data, these added detail on China’s housing market, allowing for unique insights into Chinese construction patterns. Recently updated, these confirm that even before the coronavirus crisis, China was doubling down on its old growth model of inefficient, state-led investment in infrastructure.

As China’s economy has slowed since 2017 (according to Fathom’s measure of underlying economic growth in China, CMI 3.0), the time taken to finish the average residential construction project has increased from just over 6 years to 7.4 in 2019. We believe that this reflects the intentional mothballing of projects in the construction phase, rather than indicating negative marginal product of capital, and is a way for the Chinese authorities to prevent these properties from coming to the market. This prevents a glut of housing from weighing on property prices, an important element in the social fabric of China’s wealthy, while enabling the authorities to cushion the economic downturn.

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This is also reflected in the time it takes to sell the stock of completed housing, which for most provinces has fallen since 2000, as highlighted by the following chart. Government policy has meant that housing in China is increasingly a sellers’ market, despite the vast sums of money being spent on residential construction. This holds across China, barring the two most densely populated provinces of mainland China, as well as for the island resort of Hainan, where the central government imposed restrictions on non-locals’ ability to purchase property to cool a rapidly overheating property market. There, it would now take just over two years to sell the existing stock of all completed housing.

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Want more charts and analysis? Access a pre-built library of charts built by Fathom Consulting via Datastream Chartbook in Eikon.

But the underlying picture is far less rosy, as highlighted by the chart below. Indeed, once all housing is taken into account, by which we mean completed and uncompleted, the time it would take to sell the stock is closer to 4.5 years. Troublingly, but not altogether surprisingly, little has changed in terms of growth tactics since the COVID-19 outbreak, with stimulus measures only adding to China’s prioritisation of old- over new-model growth. Consumer appetite remains meagre, with retails sales down 2.8% in the twelve months to May, while data from China’s industrial sector are more positive, with production up 4.4% over the same period.

 

 

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If you would like to access the data and charts, these can be found here: Chartbook/05. Refinitiv’s expanded China coverage/Fathom’s Proprietary Indicators/China Housing Proprietary Indicators

For any questions about these indicators, please contact Joanna Davies at joanna.davies@fathom-consulting.com

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Datastream

Financial time series database which allows you to identify and examine trends, generate and test ideas and develop view points on the market.

Refinitiv offers the world’s most comprehensive historical database for numerical macroeconomic and cross-asset financial data which started in the 1950s and has grown into an indispensable resource for financial professionals. Find out more.

 

 

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