China’s real estate crisis likely dragged the economy down in November

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(Bloomberg) – Economic activity in China likely slowed in November due to the deepening real estate slowdown and continued sluggish consumption.

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Growth in capital investment likely weakened last month, dragged down by weakness in real estate investment, according to the median estimate from a survey of economists ahead of the data release Wednesday morning.

The slowing economy prompted Beijing to change its policy stance this month, with the central bank easing monetary policy and the Communist Party ordering more budget spending in 2022. It is not clear, however, whether this is support will be sufficient to reverse the effects of repression on reality. real estate, which triggered defaults at China Evergrande Group and other developers and resulted in plummeting sales.

“The worst of the policy tightening is behind us, but I’m not sure we can say the worst financial or economic fallout is behind us,” said Logan Wright, director of Chinese markets research at Rhodium. Group, in an interview on Bloomberg. TV. The focus will be more on easing monetary policy than fiscal policy, given the financial pressures on local governments, he said.

While Beijing is expected to make more credit available and has signaled some easing of controls on the housing market to support “stability,” officials last week maintained the basic position that “houses are made to live in,” not for speculation ”.

Data on the price of new homes will show whether the price declines in September and October have continued. The end of the year is usually a busy season for home sales, and a continued decline in sales will exacerbate the already precarious financial situation for many developers.

Read more: Abandoned projects shatter confidence in China’s domestic market

Growth in infrastructure investment may have accelerated from the 1% expansion in the first 10 months of this year, as local governments stepped up sales of special bonds in the last few months of this year. the year after a slow start. That boost could continue until 2022, with Beijing allowing local governments to start selling next year’s bonds from Jan. 1 to ramp up spending, according to the 21st Century Business Herald.

Still, the Central Economic Work Conference called on local governments to avoid taking on more hidden debt, suggesting that it will be difficult for them to maintain high levels of budget spending in the long run and that it will be more difficult to fully compensate for the debt. downturn in real estate. investment.

What Bloomberg Economists Are Saying …

The Chinese economy likely continued to stabilize in November, but got stuck at the lower gear. Stronger exports have provided support. The slowdown in activity in the real estate sector may have held back investment, although any slowdown could be mainly due to a higher base last year.

Chang Shu and David Qu, economists

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Retail sales may have grown at a slower pace of 4.7% in November, from a 4.9% increase in October, according to a survey of economists. Although there were still strong sales around the “Singles Day” shopping festival in November, consumption of services, restaurant and food service sales, and physical store purchases may have moderated due to the changes. outbreaks of Covid-19 during the month. Sales of passenger cars have also probably declined.

Industrial production is expected to pick up on strong export demand and an easing of production restrictions introduced after power cuts earlier in the year.

The polled unemployment rate likely remained stable at 4.9% in November, a reading close to pre-pandemic levels, the survey showed. But other indicators showed that the employment situation continued to deteriorate in November. The average number of hours worked per week is worth watching – it hit an all-time high in October, indicating that companies likely made existing employees work longer instead of hiring new workers.

Labor market pressures will continue into 2022, with a record number of nearly 11 million college graduates entering the workforce. Regulatory crackdowns in sectors ranging from education to real estate and the internet mean reduced employment opportunities, while the government’s Covid-zero approach will continue to dampen employment in the service sectors. If exports slow down from their record gains this year, this will further increase pressure on the labor market.

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