China's Real Economy Loses to Real Estate

WSJ: Massive Stimulus Keeps China GDP Steady in Second Quarter
Chinese growth held steady at 6.7% in the second quarter after a flood of stimulus in the first quarter lent at least temporary stability to a slumping economy.

The growth report beat forecasts after prior data showed weaker manufacturing, exports and private investment. A Wall Street Journal poll of 16 economists had predicted 6.6% growth in China’s gross domestic product in the April-June period.

Friday’s data were likely to ease pressure on Beijing to roll out more immediate stimulus measures, which have proved increasingly ineffective in reversing downward momentum. But some economists saw little chance of a marked improvement in the second half.
The massive stimulus and credit growth sparked a real estate bubble. Investment in industry, real estate and service economies is weakening or in outright contraction as of June. (Private Investment Growth Slows to Zero in June)

SOEs spent a lot of money in the first half, on land. Ministry of Finance Owned Cinda Real Estate Becomes Land King
Reform Can Wait: 4 Trillion Stimulus All Over Again as SOEs Pour into Land Market
As noted in yesterday's post, SOEs and Financial Companies Push Private Developers Out With Insane Land Grab, there's also already talk of collusion between SOEs/developers and local governments. They conspired to raise land prices before and with both sides in need of some good news, are they at it again? This recalls a post from last week on the recurrence of supposedly solved credit problems at the local level: China's Default Bombs Haven't Been Defused

Everyone can come to their own conclusion as to whether China has made progress on reform, as to whether the anti-corruption campaign has greatly reduced the incidence of corruption and disregard for central directives, or if history is repeating. A large inflation of money and credit is reason enough for a surge in land prices so one doesn't need to imagine more. Yet if old patterns persist, there's far more trouble brewing than meets the eye.
The future is not yet written, but as of today, the GDP growth purchased with stimulus and credit growth in the first half of 2016 will eventually be marked down to a loss. The real economy is deteriorating. Right now the only bright spot is the commodities rally and because it has the power to lift many emerging markets with it, it cannot be ignored. If oil has peaked in June for the third year in a row and it takes commodities with it, the bounce seen in the Chinese economy will go with it.

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