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E.g., 26-09-2020
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    Gavekal Dragonomics

    The Big Fish Eat The Little Fish

    China’s housing sales may have plateaued, but the largest real-estate companies still have plenty of room to grow by consolidating an enormous and fragmented market. A multiyear boom in M&A has strengthened the market position of the largest developers, who are still easily raising huge sums from capital markets that can fund future deals.

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    Gavekal Dragonomics

    Housing Takes A Breather; More Stress On The Way

    July was a weak month for China’s economy, as investment, industrial production and retail sales all slowed. An important exception was the property market, where sales ticked up and buyer sentiment seems strong. Nonetheless, housing activity will continue to slow over the rest of the year, if at a gentler pace than the plunge in May and June.

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    Gavekal Dragonomics

    The Housing Cycle Is Aging Rapidly

    The latest up-cycle in China’s housing sales has probably reached its peak. Major cities saw a marked step-down in sales growth in May, and absent major new stimulus national data will follow suit. Housing sales are still on pace for full-year growth of over 10%, but will slow to single digits later in 2016, and 2017 will see a deeper correction.

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    Gavekal Dragonomics

    Despite The Bounce, Housing Has Peaked

    The rebound in China’s housing sales early this year raises the obvious question of whether we were too quick to proclaim the peak in housing demand. Housing sales in 2016 are indeed on track to surpass 2013, but this is a stimulus-driven bounce. The long-term trend still points to a 10-20% decline in annual construction volume by 2025.

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    Gavekal Dragonomics

    The Migrant Housing Solution

    In hundreds of smaller cities around China, rows of apartment blocks lie unsold. Can this inventory ever be absorbed? The government hopes migrant workers, long too poor to urban property, will be part of the solution. On a recent trip to southwest China, I did find signs that migrants are becoming a factor at the low end of the housing market.

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    Gavekal Dragonomics

    How Long Can This Keep Going On?

    Has China salvaged growth only by inflating a housing bubble? How much tolerance the government has for a surge in housing prices and mortgage debt is a crucial question for judging how long the new construction cycle can last. History suggests the price gains are now strong enough for the government to start cooling things down at the margin.

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    Gavekal Dragonomics

    A Regional Guide To The Property Recovery

    The rebound in real-estate investment is behind China’s growth stabilization, but flies in the face of still-high inventories of unsold housing. The regional pattern is very mixed: some genuine improvement, and a lot of government stimulus. Construction in 2016 will be better than expected, but the lack of destocking will drag on future growth.

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    Gavekal Research

    From Black Hole To Muddling-Through

    Over the past few months, sentiment towards China has shifted dramatically. Fears that China was a black hole at the heart of the global financial system have morphed into mild optimism, as growth indicators have stabilized. There remain plenty of longer-term problems, but muddling through rather than collapse is the likely scenario for 2016.

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    Gavekal Dragonomics

    A Turn Too Soon

    The biggest surprise in China’s latest data was the rally in property: housing sales surged and real estate investment picked up in the first two months of 2016. But this improvement is unlikely to be sustained: the turn in property has come far earlier than fundamentals warrant, and suggests the government does not have a firm grip on the market.

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    Gavekal Dragonomics

    Embracing Housing Debt

    China’s latest wave of supportive policies for the housing market won’t generate a huge bounce, but they do show the government is happy to use easy credit to keep housing sales going. Helping the market digest the oversupply of new housing is clearly a major priority. But the consequences will be rising household leverage and frothy prices.

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    Gavekal Research

    Hong Kong Finally Rolls Over

    One of the world’s great bull markets may finally be rolling over. In the 12 years to August 2015, Hong Kong’s residential property prices climbed 557%, with most of the increase occurring since the 2008 financial crisis as prices surged on the back of plentiful liquidity and ultra-low mortgage rates. Now evidence is mounting that the market has peaked. Over the last three months, secondary market prices have slipped by -5%. With the US Federal...

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    Gavekal Dragonomics

    The Housing Recovery Is Fading

    One of the few recent bright spots in China’s economy has been the recovery in housing sales. Unfortunately, a number of indicators show that recovery losing steam: gains in sales and prices will slow in coming months. This turn in the cycle reinforces our view that construction activity will be weak in 2016, and that more rate cuts will come, says Rosealea.

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    Gavekal Dragonomics

    Housing & Construction Review 2015

    Our annual overview of China’s housing and construction markets summarizes the short- and long-term outlook for these crucial economic drivers. In this concise chartbook, Rosealea explains the structural challenge from stagnant demand, the new focus of housing policy, and the role of inventories in shaping the construction cycle.

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    Gavekal Dragonomics

    When Will Construction Rebound?

    Given the huge role that real estate plays in China’s economy, we can’t expect growth to rebound much until construction recovers. In this piece we propose scenarios for how this could happen, focusing on the inventory cycle. We conclude that construction starts will decline again in 2016, with a cyclical rebound not arriving until 2017 or 2018.

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    Gavekal Dragonomics

    Spreading The Urban Wealth

    President Xi Jinping is promoting a plan for integrating Beijing and Tianjin with poorer Hebei province, ev even declaring it a national strategy to drive future growth. If successful, the plan will spread some of the resources in central Beijing more evenly around the region. This in turn will push up property prices in suburbs and smaller cities.

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    Gavekal Dragonomics

    Taking The Pulse Of The Construction Cycle

    China’s housing-driven industrial cycle is stuck in low gear, but has not worsened dramatically. What is getting worse are the parts of the economy that had been doing better earlier in the year: exports, consumer spending and finance. The result will be headline GDP growth that (finally) falls below 7% in the third quarter.

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    Gavekal Research

    Is The Bull Market Over? (I)

    Is the bull market in equities over? As our readers might imagine, this is a question we have been asked more than once over the past few weeks. Notwithstanding the bounce of the last two days, the simple fact that clients are wondering about the answer is troubling in itself. Their doubts are embodied by three ominous developments:

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    Gavekal Research

    The RMB, The HKD And A Flood Of Cash

    If nothing else, yesterday’s announcement that China spent US$94bn of its foreign reserves in August to prevent the renminbi from falling against the US dollar should convince the doubters that China has no intention of being a mercantilist “currency warrior”. As a result, any bearish case against the renminbi should not rest on the government’s intentions—in spending its US$94bn, the People’s Bank of China has made it clear that it will hold a...

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    Gavekal Dragonomics

    Housing: From Suppression To Support

    After two rounds of relaxing housing policies, China’s authorities have almost run out of ammunition within the existing policy framework. As a result, the authorities are eyeing new tools to support demand: a greatly expanded market in mortgage-backed securities and a housing policy bank to help finance home purchases.

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    Gavekal Dragonomics

    Inventories Still Weigh On Housing

    Many Chinese cities are still working off the overbuilding of recent years, so developers have little reason to start new housing. Until this is resolved, improving housing sales will do little to boost the economy. This excess supply will continue to weigh on construction for at least another year.

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