China Slowdown: Real Estate Investment Drops 13.9pc YoY in December

The Chinese government likes to report cumulative year-to-date growth totals. I used to dig into the numbers and look at single-month year-on-year data because it gives a quicker signal around turning points. I stopped spending time on it because China kept changing data sets and making it harder to calculate. It also became pointless with increased manipulation in the economy. However, once in awhile it pays to go a little deeper because as the chart below shows, growth is rapidly decelerating in Chinese real estate.

In December 2020, real estate investment increased 11951亿元 or 1195 billion RMB. The increase in December 2021 was 10288亿元, a decrease of 13.92 percent.

The prior post was China Reveal Comes in March. I'll go through how that's going to play out with real estate. The first print of the year comes in March because January-February is combined. Spring Festival is a two-week holiday that moves with the lunar calendar. The two-month total gives a clean number that requires no statistical adjustment. The increase of 38.3 was an easy comparison in Jan-Feb 2021 because it compared to the pandemic period. A comparison between December 2020 and Jan-Feb 2021 shows that increase was 17 percent month-on-month.

How much growth from December 2021 to January and February 2022 is needed to produce a positive print in the first reported real estate investment number in March? Answer: 35.94 percent. If real estate investment increases only 20 percent from December's total, the first number will be negative 11 percent. The government can avoid this by frontloading investment similar to 2021. The cumulative YTD growth total will decline as it did last year, but it will remain positive for many months, perhaps all of them if stimulus is launched during 2022.

I don't want to overstate the relevance of this data. What matters isn't this one data point, but the context. Back in 2014, when I paid close attention to provincial data, I noticed Liaoning's real estate investment plunged: Liaoning Sounds Warning on Chinese Economy. The province relied on higher stage production, industrial raw materials. After the 2011 peak in commodities, all of northeast China was slowing, but Liaoning was more acute. To make up for it, they shifted investment into real estate. Liaoning eventually had a brief headline recession as more dominoes fell. Banks were still failing in 2019. The government could deal with it all because growth elsewhere was strong.

What else was going on in 2014? The Federal Reserve's taper. The month that Chinese financial news clued me in to Liaoning's situation was the same month the taper concluded: October 2014. History is rhyming. Pay close attention. Even if China steers through it all again, the prior period included plunging commodity prices, a soaring U.S. dollar, "surprise" yuan depreciation and major headwinds for U.S. equities. It didn't end until 15 months later, when in early 2016 global central banks informally agreed to the Shanghai Accord.