2012-06-07

China's rate cut: behind the curve

China is starting to cut interest rates, but they're starting slowly and they're behind the eight-ball. These rate cuts won't have real impact until 2013 at the earliest.

All eyes need to remain on housing. Home sales are picking up in Beijing (北京部分楼盘被曝单价涨五千 逼近调控前水平), and that means price declines should accelerate. However, with the renminbi weak in the forex market, there's also the possibility that inflation picks up. Here's English coverage of the data: "Big four" cities' home purchases bounced in May
Broader pictures across these big cities in China, according to the latest report, said trading volume of new homes in Beijing, Shanghai, Guangzhou and Shenzhen averagely increased more than 20% year-on-year in May. And except for Beijing, average home prices in the other three cities all increased, with Shanghai 2.46% year-on-year, and Shenzhen almost 20% year-on-year.

Compared with the statistics released by China Index Academy, average price of 100 home price tracked cities decreased for the ninth consecutive months, home prices of the big four cities seems more reluctant to follow the trend.

The sudden bounce of home buying was stimulated by the the released demand for home using. While at the same time, more homes designed within 80-120 square meters are provided in the market, which also stimulated the aggregating buying, Centaline research department explained in its released analysis.

"People have the psychological inclination to buy when the home price is going up rather than when it's going down. This is another stimulus of the current high-volume home purchase," added in the analysis.
Another blow to the "savvy Chinese investor" meme one often comes across. If home prices do recover though, the government will look very weak and the central bank has started a rate cutting cycle. It will require extreme measures stop the bubble if it reflates, otherwise inflation will come back and this time, the renminbi will devalue.

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