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Steno Signals #61 – The end of China as we know it?

The doom and gloom in China is suddenly back with a vengeance and everyone seems convinced that China is now in a structural decline driven by an embedded balance sheet recession and extremely weak demographics. But how bad is it really?
2023-08-20

Happy Sunday and welcome to our flagship editorial!

Everyone seems to have been occupied with Chinese doom-mongering over the past week as the malaise in the Real Estate sector is now out in the open once again. It is obvious to everyone that China is stuck in a mess but how grave are the issues really?

Another couple of trading days as we have had last week and we will be back at the abysmal October lows in traded property stocks, which prompted or even forced the CCP to initiate a surprise reopening of the economy in November last year.

Wouldn’t the BRICS meeting Aug 22-24 be a good timing to deliver a strong signal to markets, if we are to take the new project seriously?

We are not trying to make the case that the Politburo in China watches concrete price levels in the Hang Seng Property Index, but we find the price action in listed real estate to be a good bellwether of the overall confidence or trust in the economic leadership in China and hence something that should worry the CCP materially now.

There are simply no good arguments for spending when there is a structural crisis brewing in Real Estate with 1) declining credit access, 2) increasing vacancies, 3) a shrinking workforce and 4) extremely low consumer confidence.

The already highly indebted Chinese consumer/household will of course not spend as long as a cocktail of the above four issues remains the base-case assumption for the road ahead.

Chart 1: Chinese Real Estate Trends back in intervention territory?

The doom and gloom in China is suddenly back with a vengeance and everyone seems convinced that China is now in a structural decline driven by an embedded balance sheet recession and extremely weak demographics. But how bad is it really?
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