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China's property market falters | China's property market falters |
(40 minutes later) | |
China's property boom may have peaked in June. | China's property boom may have peaked in June. |
China's frothy property market may have peaked after a government clampdown on speculators, new data has shown. | China's frothy property market may have peaked after a government clampdown on speculators, new data has shown. |
Property prices across 70 cities fell 0.1% in June compared with May - the first monthly fall since February 2009. | Property prices across 70 cities fell 0.1% in June compared with May - the first monthly fall since February 2009. |
Meanwhile, separate trade figures released at the weekend showed exports surging, but imports lagging. | Meanwhile, separate trade figures released at the weekend showed exports surging, but imports lagging. |
The data paints a mixed picture for the Chinese economy, which some economists and investors fear may suffer a sharp slowdown later in the year. | The data paints a mixed picture for the Chinese economy, which some economists and investors fear may suffer a sharp slowdown later in the year. |
Turning point | Turning point |
In April, the Chinese government introduced a series of new regulatory restrictions on the housing market that sought to restrict speculative buying. | In April, the Chinese government introduced a series of new regulatory restrictions on the housing market that sought to restrict speculative buying. |
These included higher down-payments on house purchases, stricter lending rules for property developers, and limits on the ability of investors to buy more than one home. | These included higher down-payments on house purchases, stricter lending rules for property developers, and limits on the ability of investors to buy more than one home. |
Many economists, investors and policymakers - both inside and outside China - worry that Chinese real estate may be experiencing a bubble brought on by excessively low interest rates, which has fuelled speculators. | Many economists, investors and policymakers - both inside and outside China - worry that Chinese real estate may be experiencing a bubble brought on by excessively low interest rates, which has fuelled speculators. |
Despite the monthly fall in June, property prices across China still remained 11.4% higher than a year ago. | Despite the monthly fall in June, property prices across China still remained 11.4% higher than a year ago. |
Financial markets are now assessing whether Beijing will successfully pull off a soft landing in housing prices, or whether the Chinese property market will now deflate in the same painful way the US market has done since 2007. | |
Brakes on | Brakes on |
The property market restrictions are just one dimension of a general move by Beijing to cool the economy down, in the face of accelerating inflation. | |
Data released on Monday by the Chinese central bank showed a continued slowdown in bank lending - which is tightly regulated in China. | |
Net new lending fell to 603bn yuan ($89bn; £59bn) in June, down 5.6% from May, and down more than half compared with a year ago. | |
The Chinese government had encouraged an unprecedented expansion in bank lending last year in order to weather the global recession. Now it wants to stop that expansion. | |
Much of the lending went into infrastructure investment. But some of it also went into property speculation. | |
Lagging imports | Lagging imports |
Meanwhile, Asian stock markets reacted well to the weekend's trade figures, which point to a stronger recovery in global demand. | |
Exports jumped 43.9% compared with a year earlier - well ahead of market expectations of a 38% rise. | Exports jumped 43.9% compared with a year earlier - well ahead of market expectations of a 38% rise. |
Imports however only rose 34.1%, in a sign that Chinese consumer spending continues to lag the booming economy. | Imports however only rose 34.1%, in a sign that Chinese consumer spending continues to lag the booming economy. |
Some economists argue that the relatively weak spending by Chinese households may have the same root cause as China's property boom: low interest rates. | |
Beijing has kept interest rates down during and after the global recession in order to stimulate growth. | |
But some economists argue that this penalises Chinese households, who have large savings, and subsidises Chinese industry and property speculators, who are major borrowers. | |
'Currency manipulator' | 'Currency manipulator' |
The release of the trade data - which shows a big increase in China's controversial trade surplus - comes at a politically convenient time for China. | |
China pegs its currency, the yuan, to the dollar at an exchange rate that many in the US argue gives Chinese exporters an unfair price advantage. | China pegs its currency, the yuan, to the dollar at an exchange rate that many in the US argue gives Chinese exporters an unfair price advantage. |
The latest trade data came only days after US Treasury Secretary Timothy Geithner published a much delayed report on China's currency policy. | |
Importantly, the Treasury chose not to label Beijing a "currency manipulator" - a decision that undermines efforts by the US Congress to pass punitive trade sanctions against China. | |
The US Treasury's decision to take the political heat off China was a response to a more flexible exchange rate policy announced by the Chinese central bank in June. | The US Treasury's decision to take the political heat off China was a response to a more flexible exchange rate policy announced by the Chinese central bank in June. |
However, so far this "flexibility" has translated into a mere 0.9% rise in the value of the yuan. | However, so far this "flexibility" has translated into a mere 0.9% rise in the value of the yuan. |
Slowing reserves | Slowing reserves |
One indication of China's alleged manipulation of its currency is its accumulation of US dollar reserves. | One indication of China's alleged manipulation of its currency is its accumulation of US dollar reserves. |
In order to keep the yuan cheap, the Chinese central bank must hoover up all the unwanted dollars accumulated by its exporters. | In order to keep the yuan cheap, the Chinese central bank must hoover up all the unwanted dollars accumulated by its exporters. |
And according to data released on Monday, the pace of reserve accumulation has slowed significantly. | |
The central bank said it collected only $7.2bn of reserves in the second quarter of the year, down from $47.9bn in the first quarter and a quarterly average of $113bn last year. | The central bank said it collected only $7.2bn of reserves in the second quarter of the year, down from $47.9bn in the first quarter and a quarterly average of $113bn last year. |
This may be an indication that since the new "flexible" yuan policy began, markets have had a bigger role in deciding the exchange rate. | This may be an indication that since the new "flexible" yuan policy began, markets have had a bigger role in deciding the exchange rate. |
However, much of China's reserve accumulation does not appear in the official data, making it difficult to draw an immediate conclusion. | However, much of China's reserve accumulation does not appear in the official data, making it difficult to draw an immediate conclusion. |