China Housing Market Update
A collapse in the housing market remains one of the greatest risks to the Chinese economy. Investment in housing accounts for about 10 percent of GDP. It grew by about 25 percent in real terms last year. A slowdown to 10 percent this year would shave 1.5 percentage points off GDP growth.
While the data so far this year indicate a rebound rather than a collapse, significant uncertainties remain. Real residential investment picked up to 23 percent in January-February from 17 percent in 2011Q4. This is consistent with faster growth of the volume of starts, housing under construction and completions. However, while construction activity was picking up, housing sales fell at a faster rate, the result of the government’s ongoing tight housing policies. Clearly this situation cannot persist. Note that while housing starts rebounded, they only returned to zero growth year-over-year. Starts had been very high in 2012. We expect that these projects will be completed and that new starts could fall very sharply this year. Nevertheless, the completion of existing projects underway and the government’s commitment to social housing should underpin housing activity this year. The effect of falling starts in 2012 will likely be felt in 2013-15.
The production indicators were mixed, but also suggested that further weakness ahead. The growth of industrial value added slowed to 11 percent in January-February from 13 percent in 2011Q4. This is a very weak reading. Industrial value added has not been below 12 percent since August 2009. The Purchasing Managers’ Index (PMI) turned up in January-February. However, it remains well below the 52.6 recorded in January-February 2011, suggesting that whatever rebound there might be is relatively weak.
Note: Source – Canadian Embassy