China’s Property Bubbles Intensifies

So the ‘silent stimulus’ recently implemented by the Chinese government (including the hiding, editing censoring of statistics) aimed at attaining statistical growth goals has only been further inflating property bubbles. 

China’s credit fueled property bubbles may have entered a blowoff phase, notes the Bloomberg:

Home prices in China’s four major cities rose the most since January 2011 last month, raising concerns that a lack of new property curbs is allowing a bubble to form.

New home prices climbed in 69 of the 70 cities the government tracked in September from a year earlier, led by 20 percent increases in the southern business hubs of Shenzhen and Guangzhou, the National Bureau of Statistics said in a statement today. Prices in Beijing rose 16 percent and advanced 17 percent in Shanghai, the biggest gains since the government changed its methodology for the home data in 2011.

Premier Li Keqiang has come up with no additional measures to rein in property prices since his predecessor Wen Jiabao stepped up a three-year campaign in March to cool the housing market, ordering the central bank to raise down-payment requirements for second mortgages in cities with excessive cost gains. Some Chinese cities are facing increasing pressure to meet annual home-price targets they set earlier this year and to cap gains at the growth rate of local disposable incomes.

Bubbles are a function of inflationism, and in China’s case, compounded by financial repression, viz keeping capital markets underdeveloped or limiting options for the citizenry to invest their savings in order for the government to tacitly capture them.

Previous property curbs has failed and will continue to fail because of the political incentives driving China’s politics.

Political careers of local government officials have been mainly dependent on the goals set by the national government. Thus, for local government to meet such statistical ‘growth’ targets, they resort to circumventing these regulatory hurdles by using local government financing units (LGFU) through the private sector, who partly bankroll these property projects via the shadow banking industry.The national government has accused many local governments of statistical manipulation. Yet if the LGUs indulge in them why not the national government?

Add to these the barrage of stimulus employed unannounced by the national government.

More signs of credit expansion fueling China’s bubbles, from the same article…

Domestic loans to developers jumped 50 percent last month from a year earlier, according to Shanghai-based advisory firm CEBM Group, which calculated government data.

A residential land parcel in Beijing sold at a record price 73,000 yuan ($11,980) per square meter (10.76 square feet) on Sept. 4, according to Centaline Property Agency Ltd. Sun Hung Kai Properties Ltd. (16), Hong Kong’s biggest developer by market value, bought a site in Shanghai for 21.8 billion yuan in an auction the next day, a record price in that city, Centaline said.

“Developers have been able to access cheaper liquidity, which financed their land acquisitions,” ANZ’s Liu said. “Homebuyers dashed into the market fearing that home prices will rise further given the high land prices.”

For the fifth month in a row, the eastern city of Wenzhou was the only one to post a decline, with prices dropping 1.7 percent from last year.

Existing home prices rose 18 percent in Beijing last month from a year earlier, leading the gains, followed by a 14 percent increase in Shenzhen and 12 percent in Shanghai, according to the data.

The Chinese government recently surpassed their statistical objective growth threshold of 7.5% with a 7.8% 'growth' for the third quarter. 

Curiously the pace of growth in the broad sector has been nearly ‘identical’ to their reference points.

This from another Bloomberg article 

Gross domestic product rose 7.8 percent in the July-September period from a year earlier, the National Bureau of Statistics said today in Beijing, matching the median estimate in a Bloomberg News survey. Industrial production advanced in September by 10.2 percent, in line with projections, while retail sales gained 13.3 percent…

Industrial output growth compared with August’s 10.4 percent.Retail sales compared with a median estimate of 13.5 percent expansion and 13.4 percent in August.

Fixed-asset investment excluding rural households, a key force behind growth, grew 20.2 percent in the first nine months of the year, compared with the median estimate of 20.3 percent from analysts and a 20.3 percent pace in the January-August period

Let see: Industrial output 10.2 vis-à-vis 10.4. Retail 13.5 relative to 13.4. Fixed asset 20.2 against 20.2. Given the booming and highly volatile property sector, in my view, I’d smell something fishy with the seemingly placid numbers which assumes that general economy has been growing at steady pace.

Yet more credit inspired statistical economic growth from Financial Times: 

A surge in lending by banks and other financial institutions at the start of this year is one of the main explanations for the upturn in Chinese growth. Total social financing – China’s widest measure of credit – rose 52 per cent year-on-year in the first five months of 2013, an astonishingly fast pace.

So whether in the US, Japan, Europe or China or elsewhere, governments have been pushing debts to their critical limits in order to attain temporal statistical growth. 

Along with the momentum or yield chasing inspired private sector, governments have been funneling resources into speculative-capital consuming activities.

Yet every action has a consequence. Spurious or artificial growth financed by unsustainable will eventually face a day of reckoning. The $64 gazillion question is: when?

And another thing… as China’s bubbles intensify, Hong Kong and Singapore’s luxury rental market has shown signs of a slowdown: are these signs of a reprieve before the next leg up or are these initial signs of a coming reversal?