China Shows Signs of Rebound

The Chinese economy is showing signs of renewed strength after aggressive stimulus efforts over the past year.  China surprised analysts with a 7% annualized GDP growth and less housing price declines than expected.

The Chinese economy is showing signs of renewed strength after aggressive stimulus efforts over the past year.  China surprised analysts with a 7% annualized GDP growth and less housing price declines than expected.

In the housing market, only 33 cities saw house prices decline in June–down from 41 cities in May. Additionally, less than half of Chinese cities saw prices for new homes fall after over one year of more than half seeing declines. In total, 37 of the 70 cities covered by the National Bureau of Statistics reported a fall in housing prices, and 27 saw prices rise on average. Price growth accelerated in seven cities.

The biggest price growth was seen in Shenzhen, where housing prices rose 15.7% on a year-over-year basis. Beijing and Shanghai also saw prices rise.

Many analysts attribute the housing improvement to lending reforms spearheaded by the Chinese government, which have made mortgages more affordable and easier to obtain. The People’s Bank of China cut interest rates 4 times in the last 9 months. 

Some also believe some Chinese buyers are reallocating savings away from stocks and into real estate after the Shanghai Composite Index led a bear market that has impacted all major Chinese equity indices.

Home prices rose 13% in the first six months of 2015, and several cities of varying sizes posted gains in June and for the year.

The continued rise of housing prices is seen in existing and new homes, and if the trend continues, it is likely to increase demand for home building materials both domestically and from abroad.

GDP Growth

Last week, the NBS reported a 7% annualized gain in Chinese GDP for the second quarter of 2015, princely on the government’s growth target. Some of that rise has been attributed to the rise in stock prices, yielding a wealth effect that drove consumer spending.

Since stock markets fell into a bear market that spending might be curbed in the third quarter, but many analysts believe the country could approach their target for the full year.

Several categories of production saw sharp increases, such as industrial output, which rose 6.8%, and fixed asset investment, which rose 11.4%. Services rose 8.4% year-to-date, indicating a shift to domestic consumption from industrial production focused on exports. Likewise, retail sales rose 10.6% in June despite a stock market downturn causing many economists to expect lower growth.

Despite the recent spate of good news, some commentators have a cynical tone, dismissing China’s numbers as suspect and unreliable. Others warn that China’s recent growth improvements are thanks to a growing reliance on debt, as corporate bonds swell to over $16 trillion and the Chinese government continues to open new avenues for Chinese consumers to take on more debt for home purchases, equity speculating, and retail consumption.