Looking back on how 2023 has panned out for the Chinese economy, we can definitely say that developments in the Asian giant have not been boring. The year started with great optimism, stemming from the reopening of the economy after three years of draconian zero-COVID policy; but this positive sentiment quickly vanished, as low pandemic savings and the impact of the weak housing market on consumer confidence ended up taking their toll on the real economy. However fleeting, the reopening effect does mean that China is likely to hit its GDP target of 5% this year. But the worse-than-expected performance

Fathom has been warning for years that things have gone badly wrong in China’s real estate market, a fact which is now becoming widely appreciated as some of China’s biggest property developers default on their debts. The country is in the grip of a house price bubble which has put home ownership out of the reach of many ordinary people, while at the same time suffering from a monumental over-supply of partially completed and unoccupied housing stock which is being held back from the market. With strong vested interests on both sides, policymakers walk an increasingly narrow path to prevent

The People’s Bank of China (PboC) cut its five-year loan prime rate (LPR) by 15bps last week to 4.45%, the largest monthly reduction since it became a key benchmark for policymakers in 2019. The move signals a somewhat greater urgency on behalf of the authorities to try to support the extremely weak housing market, as mortgages are linked to the five-year rate; the one-year rate was left unchanged. In the current easing cycle beginning late last year, the five-year rate had previously only been reduced by 5bps. The move follows a recent 20bps cut in the minimum mortgage rate financial

China’s housing market remains very weak amid a sharp fall in confidence since the collapse of Evergrande. The value of publicly-traded Chinese real estate firms continues to slump, with relative losses in that sector of close to 50% since a cyclical peak in January 2018. Meanwhile, residential housing sales were 22% lower in value in the first two months of this year than in the same period in 2021, with the area of floor space sold down almost 14%. Yet despite substantial exposure to real estate, Chinese banks’ equity performance has held up relatively well. Our interpretation? Investors believe that

Refresh this chart in your browser | Edit the chart in Datastream  Policy measures by the Chinese authorities to rein in the housing market have contributed significantly to the sharp slowing in China’s growth since the second half of 2021. Property-related sectors directly account for almost 15% of its GDP. However, when indirect impacts are factored in, the property market represents up to 30% of GDP. Indeed, the slowing in the housing market has had a large negative impact on sectors such as cement and steel production, and on retail sales. In its annual “Two Sessions” parliamentary meetings that finished last week,

Fathom Consulting’s proprietary indicators provide unique, detailed and independent insight into the Chinese economy. Our findings relating to the housing sector are captured in the charts below and are available on Refinitiv’s Datastream Chartbook, under ’05. Fathom’s Proprietary Indices’ and ’04.03 HT China housing market’. Struggling to find alternative sources of growth, policymakers in China actively encouraged the housing investment boom for many years. Carefully managed by the state, the excess capacity that this growth model created was hidden beneath the surface. Fathom’s proprietary housing indicators provided a detailed breakdown of the extent of China’s housing problem, pointing to the

China has been pouring money into residential construction for years, with the sector now accounting for 15% of the nation’s economic activity.[1] It is little wonder that recent events surrounding real estate developer Evergrande have caused so much concern — not least for China’s policymakers. As a consequence, they appear to be recalibrating their policy stance away from the tightening seen in recent years.[2] Refresh this chart in your browser | Edit the chart in Datastream China’s policymakers are right to be concerned. Although Evergrande is different to Lehman’s in the sense that there is less hidden connectivity through the global system,

China has been pouring money into residential construction for years: the excess stock of housing is far larger than we previously thought. In addition to the stock of housing ‘under construction’, it seems that there is a rapidly growing stock of housing whose construction has been ‘paused’ and not restarted. Some of this stock will have been demolished, though it is unclear how much. The opacity of the data means that we also do not know and cannot estimate the starting level of the ‘paused’ stock of housing, but we do know how much it has contributed to the overall

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