The epidemic first stunned the Chinese economy at the beginning of the year; then, the authorities’ liquidity injections came to the rescue. The analysts scrutinize the real estate market, one of the barometers of economic health, to see the result over the year. The astronomical monetary easing in 2009 in response to the subprime crisis had propelled the Chinese economy for a few years by fuelling an influx of investment. This time, the best-equipped cities took advantage of it. Beijing, which in two years 2017-2019 had seen a fall in prices of more than 20%, recorded a rebound of 6.3% last year (as did Shanghai +6.3), and Shenzhen soared by 14.1%.
The government created in 2005 a list of 70 cities to monitor the fluctuations in the largest ones. Forty-three show an increase, one stagnates, and 26 show a decrease. Shenzhen took the lead, while Mudanjiang, a city on the Russian border in Heilongjiang, recorded the largest decline, -10%.
Increases and decreases
Shenyang (Liaoning) is the only provincial capital in the Northeast to show an increase, +7.8%, while Harbin (Heilongjiang) lost 3% and Changchun (Jilin) 0.2%. Dalian, in the same province as Shenyang, gained 6.1%. The higher you go up in the North, the harder it is!
The large cities in the North “near” Beijing, like most of those in the Northeast, have not bounced back. Tianjin, Shijiazhuang (Hebei), Jinan (Shangdong), Taiyuan (Shanxi), and Hohhot (Inner Mongolia) drop.
Chengdu, the Sichuan capital, is up 8.2%, while its large neighbor, Chongqing, is down 0.3%. Zhejiang, with Ningbo (+8.5%), Wuxi (+7.4%), and Hangzhou (+6.9%), is the province with the most cities in the largest increases; Wenzhou, also in Zhejiang, which is not in the top 15, gains more than 5%.
Note that the largest increase is in a city in one of the country’s southernmost parts, Shenzhen, while the largest decrease is in Mudanjiang in one of the northernmost cities. We can’t summarize China like this, but we have the trend.
Peak and fall
2017-2018 saw the last peak in real estate prices. All cities are far from having returned to the levels of that time. The most significant gap is in Langfang (in Hebei, 60 km from Beijing), which is still 46.9% below the peak in April 2017, Qingdao 22.8% (Shangdong), Tianjin 21.8%, Zhaoqing 19.3% (Guangdong), Shijiazhuang 18% (capital of Hebei), Beijing 15.8%. Another Hebei city, Baoding, is lagging, 13.8%.
The real estate sector can boost the economy while filling local government coffers, but the banking and financial systems’ deficiencies encourage massive indebtedness, which remains a significant risk. Since the housing reform in 1998, three waves of price hikes, 2004-2007, 2009-2010, 2016-mid 2018. The government has various levers to turn the market around or slow the rise in dynamic cities, purchase limits, credit regulations (debt ratio, down payment amount, and interest rates). It certainly has the power to contain the market down or up even if creativity to get around the laws still thrives!
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18 January 2021