EM BY EM #17 China: Real Estate Complex and the “phony” stimulus
In the past month, the focus of the markets revolved around the Bank of Japan and now August appears to have shifted its attention towards China. Surprisingly, Japan’s current economic performance seems to be outpacing that of China- a sentence that would have merited a straightjacket and a padded room not long ago.
In my last PBoC piece on the “The People’s Bank Pickle” I outlined the conflicting monetary policy objectives within China, and how that circumstance would impose on them to commit to one at the expense of the other- in short defending the Remnibi would prevent the PBoC to address the domestic trend of deflation.
But what about fiscal policy? Well, Politburo members keep promising but have yet to deliver anything of substance. The gap between rhetoric and action may indeed prove that at the very least the Chinese authorities remain paralyzed and unable to commit to any coherent and adequate response.
If one takes a quick look at the figures related to the Real Estate complex, a clearer understanding of the predicament facing the Chinese government might emerge. To begin with, there are approximately 27 million square meters of vacant space in Beijing alone and it has been rising for years.
Chart 1: Beijing RE Vacancy rater and RE climate index