Tuesday, 14 April 2009

One More Cup For You, Perhaps?

Now that the economic forecasting profession has sunk to the standards of the tea leaf reading lot, it might be worth highlighting the occasional shine through of light. Consider the FT's interview with Cao Jianhai (spread into two articles, on property prices and on macro data). His cautious assessment of the outlook for the Chinese economy should warn all those who read too much into the recent Chinese data. Especially given that the latest fad is to base speedy global recovery scenarios on expecting China's rapid regeneration. And, given that unlike many verbose observers, Cao Jinhai might actually know what he is talking about...

Many in the global forecast profession have argued that the steady Chinese real estate demand will be the ultimate factor we will look back to as the cornerstone of the global recovery. Now here is the Cao-forecast:
average urban residential property prices to fall by 40 to 50 per cent over the next two years from their levels at the end of 2008.[...] Prices may not fall in the near term but I expect a collapse starting next year, followed by many years of stagnation.
He also pointed out that the positive stats people are so excited about were at least partially due to measuring fake transactions as people try to buy into the government stimulus...

The volume of empty apartments across the country hit 91m sq metres at the end of last year, up 32.3 per cent from a year earlier, according to official figures.

Those numbers included neither the huge volumes of completed real estate projects whose owners are waiting for market conditions to improve before they put them on the market, nor the estimated 587m sq m or apartments sold in the past five years but left empty by their owners.
[Cao Jinhai] says positive signs in the property sector are being partly driven by a surge in bank lending, which grew a record Rmb1,890bn in March, bringing the total for the first quarter to Rmb4,580bn. That is more than the entire amount of fresh loans extended last year and nearing the government's full-year target of at least Rmb5,000bn in 2009.

On Thursday, government is expected to announce first quarter GDP growth of 6-7 per cent. But without the surge in new loans, growth would have been closer to 4 per cent, by internal government estimates.

"External trade is dead and it is impossible to force domestic consumption to take up the slack immediately, so we have to rely on bank lending for now," said an official who asked not to be named since he was not authorised to speak to the media. "But the government will never allow the banks to lend like this for the entire year because otherwise we will face hyperinflation and that is what the government is most afraid of."
In my experience, CASS is one of the best places to turn to when one tries to understand what is going on in the Chinese economy. (Here is another one, though.) And thus, to put it bluntly: do not expect global momentum coming from China anytime soon.

1 comment:

  1. Here is an other tea leaf exercise, trying to find the trough with how bad things turn: on the basis of the observation that US unemployment figures tended to be worse just before the recession reached bottom, at least in the previous crises. And here is a semi serious rebuttal, which still takes the phenomenon at face value, without discussing that the mechanism might possibly be different this time around. Tasseography is the proper name, it turns out