China’s economic data indicated further slowing momentum last month, with lingering caution in consumer spending adding to pressure from the country’s struggling property sector.
Retail sales, a crucial gauge of consumption, rose just 3.9 per cent year on year in November, well below economists’ forecasts of 4.7 per cent. A slight improvement in industrial activity, which grew 3.8 per cent, was overshadowed by a drop in investment across the real estate industry.
New home prices lost 0.3 per cent, their steepest fall since early 2015 and a third consecutive month of declines. Property investment rose 6 per cent in China over the year to the end of November, compared with a 7.2 per cent rise by the end of October.
Weakness across China’s vast real estate sector, which accounts for more than a quarter of gross domestic product, is weighing heavily on the economy at a time when the government has reaffirmed its commitment to strict coronavirus prevention measures.
Big real estate developers have struggled to bring in enough cash to repay their debts, with several defaulting over recent months, hitting market confidence.
“We expect the property downturn to continue into the first half of 2020 before real estate activity recovers somewhat in the second half, as anxiety about property developer defaults eases,” said Tommy Wu, China economist at Oxford Economics.
The consultancy pointed to housing starts and housing sales by floor space, which were 22.4 per cent and 16.3 per cent lower, respectively, in November year on year. New home prices fell across China’s 70 biggest cities compared with October, according to data from the National Bureau of Statistics, but they were still higher than in the same month last year.
Last week, Evergrande, the world’s most indebted developer, was finally declared to be in default by US rating agency Fitch after months of missed interest payments on its international bonds.
Ahead of the group’s payment deadline last Monday, the People’s Bank of China pumped close to $200bn in liquidity into the financial system by cutting the reserve requirement ratio, an important rate for banks. The decision was widely interpreted as an attempt to calm markets over the developer’s problems.
Officials have signalled that they would ease monetary policy to support growth, but they are also expected to commit to measures to cool the property sector and reduce debt levels.
Shimao, a more highly rated firm, was the latest developer to find itself at the centre of a market sell-off this week. The company’s $1bn bond maturing next year fell to 64 cents on the dollar, its lowest level on record.
In a statement released by its Shanghai subsidiary this week, the company said its operations are “normal”.