2018-08-02

Disharmony in China: Stimulus Is A Failed Strategy

The article below was at the top of the finance section today, a special section on the government's new stimulus effort and the recent Politburo meeting. It starts by examining the most logical outcome of increased liquidity: rising home prices. As discussed in Speculators Take Over Chinese Housing Market, the government has thus far failed to control prices and market distortions are multiplying as more heavy handed policies are introduced. Even if the government has finally strangled the market and prices are set to fall, it must prevent credit from flowing into real estate, otherwise it will reignite the market.

The article goes on to ask what else could absorb new credit? The next likely destination is A-shares. With Chinext at a new 3-year low, this seems unlikely for now. The author goes on to say he hopes for commodity inflation, since rising prices would at least help manufacturing. As for consumers, they'll be left in a similar position. Instead of being crushed by housing payments, they'll be crushed by consumer price inflation.

The track record with stimulus isn't encouraging. Prior rounds went into real estate and fixed asset investment. Ordinary Chinese were left worse off with more expensive housing. The economy also did not fully recover. Each stimulus round, in 2008, 2011 and 2014, was weaker than the last. This round may be even weaker then the trend would argue for because the United States has changed its trade policies.

Finally, the piece discusses how reform always leaves the government better off and the people worse off, and calls for real reform that redistributes resources and rights.

My comment: This article is a sign of negative social mood. It shows the latest stimulus effort hasn't boosted confidence. The slide in the A-share market reflects this fundamental reality. In addition to the main content, one surprising word in this article is hyperinflation. It is used as an aside, but it is notable that it appears at all. There is real concern about currency depreciation beneath the surface.

iFeng: 放水不能解决的问题:既然房价不能涨,那谁会涨?
"Resolutely curb housing prices."

But while giving you hope, while letting you doubt life - this meeting will give a "loose" tone, and in the second half of the year to ensure a reasonable liquidity, the market does not have to cry every day.

Although we have never fear that Chinese economics can contend with Western economics, we still can't help but feel lost about the country's direction and personal wealth:

It is necessary to release water and the house price does not soar. How do you play such a difficult action?

If water does not flow to the property market, where can it go, is it the big A-shares?

There is no price increase in the room. Is there always something in our daily life that will be pulled out to absorb this super currency emission?

With the fate of the nation at hand, are you ready?
A-shares is the most logical destination. Shares are down, the market is a confidence indicator for the economy and the government has engineered a market rise before (back in 2014/5).
Yesterday, the meeting was not over yet. Shenzhen upgraded the property market regulation for the first time, and bought a house for the company to press the timeout button. The house was sold for 3 years, and the divorce was strictly controlled to buy a house. In a word, the speculative seedlings are tightly held.

As the city's regulation of the wind direction, Beijing has clearly stated that it wants to control the land heat. In the next five years, the residential land supply structure will maintain the common commercial housing, shared property housing, resettlement housing, and rental housing 4:2:2:2 structure.

At present, the way of regulation is to artificially lengthen the trading cycle, making it difficult for you to enter and difficult, so that speculators can not benefit.

This time, directly speaking, the suppression of the rise is a fundamental shift in decision-making thinking. House prices can only be stabilized in the future, at least in the official statistics, and the front line of the population size may even fall.

Since the house price can't rise, who will rise? To be honest, we are more eager to see commodity price increases than house prices.
Rising commodity prices would be positive for China because it would ignite the emerging market growth cycle. But if the U.S. dollar is rising, how does China achieve rising commodity prices? With a lot of yuan and rising USDCNY.
The price has risen and the house price has not risen. At least it proves that money is not idling in the virtual economy, creating bubbles, and squeezing the living space of the entity. Instead, some water actually reaches the real economy, and the industry expands its scale, which in turn is transmitted to the rent, interest and people. On the payroll.

As long as there is no hyperinflation, the price increase is a blunt knife to cut the meat and warm water to cook the frog. The numb person will not feel pain. If you can't afford the house, then the wallet will be slowly smashed to the consumer goods. There is also an input inflation caused by oil prices. Oil prices are currently on the rise, and the cost of many industrial products is also rising. The price has risen a bit and the domestic demand has been expanded.

The above is purely an earnest hope.

Judging from historical experience, the two words "release water" is really a lingering worry, and it is the direct driving force for housing prices in the past decade.

During the end of 2008 and during the 12 years of flooding, the prices of first-tier cities have doubled. The 15-year policy shift has made the nation’s property market experience the feeling of panic and carnival. Divorce, lottery, and house-shaking are amazing. The housing dream finally fell heavy on the shoulders of every ordinary person, and even the third or fourth-tier cities you could not load on your body.
Three rounds of water release in history have directly stimulated soaring housing prices.

The logic of a surge in water prices is not difficult to understand, because for so many years, China has only dug up a real estate such a reservoir.

So far, no asset has a yield that can outperform real estate. Beijing has seen house prices rise at least 435% in the past decade, and Shanghai has at least 224%. Money is smart money, hot money with temperature, and of course know where to run. Everyone is turning afloat in financial real estate. Only when I go against the current, I am not cute.
Today, the total market value of Chinese real estate exceeds 400 trillion, while the total market value of the stock market is less than 60 trillion. After being cut one after another in the capital market, the people are even more convinced that the house that can be seen is true love. A toxic stock market can't be a water-absorbing sponge, and it's hard for entities to benefit from water.

Yesterday, Zhigu Trend was in the "Reading the Politburo meeting today: the most important one is landing, the policy shift is confirmed" article, "The problem that money can solve is not a problem", some readers are confused.

Quite simply, if printing money can save manufacturing, China's real economy will not be as it is today.

Even if the central bank has the heart to unblock the money transmission mechanism, it is difficult to stop the impulse of water from spreading to real estate.


Rescue the entity, it is impossible to release water.

There are still many problems that money cannot solve.
Stimulating infrastructure investment also won't help China because it needs to rebalance away from reliance on this method of growth, to say nothing of the falling investment returns as marginal utility declines, or the fact that local governments have a history of wasting money on projects.
Stimulation, infrastructure, and policy support... Each of these words sounds full of familiarity and dependence, but it is also worrying.

The historical experience has long proved that the marginal stimulation of large-scale water release is obviously weakening, and the investment income of infrastructure is getting smaller and smaller.

Guan Qingyou pointed out in the research report that the economic rebound effect brought by the loosening has become weaker and weaker, and the response has become slower and slower:

In the first round of 2008, it was loose, and it was effective in 2 quarters, rebounding 5.8% for 4 quarters.

The second round of easing in 2011, 5 quarters effective, rebounded 0.6%, lasting 2 quarters.

The last round of easing in 2014 was only effective in 8 quarters, rebounding 0.2% for two quarters.

Jiang Chao believes that the large release of water has not changed the downward trend of China's economic growth:


The first round: China's economic growth rate fell from 9.7% in 2008 to 9.5% in 11 years;

The second round: China's economic growth rate fell from 9.5% in 11 years to 7.3% in 14 years;

The third round: China's economic growth rate fell from 7.3% in 14 years to 6.9% in 17 years.

To achieve steady economic growth, it is not a matter of arranging money to stimulate it.

Although our idea is to fine-tune, pre-adjust and regulate the camera, Shanxi Securities issued a reminder that the index may be bottomed out again in the third quarter. When the policy is not up to the expected index, the easing policy may be more radical, or Structural easing has turned to full easing. A full, infinite loop of taste.
A new twist is the global economy. It is not favorable for China's stimulus.
The problem of the external environment is no different.

The contradiction between China and the United States is no longer a simple huge trade deficit. Conflicts continue to spread from the trade field to the fields of science and technology, currency, and ideology. Today, the proportion of tariffs is raised, and how many companies will be blocked by technology tomorrow. The day after tomorrow, I regret that I wanted you to enter the WTO... There is a cold war situation.

Last weekend, the Wall Street Journal published a long article "When the World Opened the Gates of China", mentioning that when Clinton first supported China's accession to the WTO, he hoped to include China in the Western economic system while reducing the control of conservative forces:

"China's accession to the WTO is not simply to let them agree to import Western products, but also to agree to a value cherished by the import of democracy - economic freedom. When individuals have more than just dreams and the power to realize their dreams, they will resort to more Big voice."

As the fate of the nation has come to this stage, China can no longer shut America up by spending huge sums to buy soybeans and airplanes.
The conclusion:
Today's China has a "change" in stability, and both internal and external weaknesses can not solve these problems.

The advantage of a controlling government has contributed to China's economic miracle, but its subsequent disadvantages have also constrained the upgrading of the economy.

Recently saw two paragraphs:

The word "reform" is now harder and harder to cheer. Like a tax cut, it becomes a word game. Every time it is drizzling, government taxes are rising year by year, and the physical tax burden is heavy. Local financial difficulties, but can not move the determination to abolish redundant staff and streamline institutions, and they are still counting on them when the stimulus policy comes.

If a great reform has become a situation of "the nation advances and the people retreat", it is really distressing.

What is really needed now is not to release water, but to complete a revolution in the face of difficulties, the transformation of the way resources are allocated, and the redistribution of rights; what is really needed is to activate the vitality of the people, not to make them confused, depressed, confused, The panic sentiment spread.

Professor Sun Liping once said that at present, the most realistic and urgent need for reform in Chinese society to solve problems is threefold:

The sense of direction of the country, the sense of security of the elite and the upper class, the sense of hope of the people.

No comments:

Post a Comment