Source: Sichuan Reading Global Macro
① Although it is not an overnight success to resolve the downturn in real estate, as far as policy responses are concerned, it has clearly entered a more urgent stage; ② The central bank's quick action has confirmed the urgency of “stabilizing real estate,” and recent signs of “trade-in” housing and the liberalization of purchase restrictions in various regions have shown that government storage at the central level is “ready to come out.”
What exactly is the economic picture that made real estate policy once again reach a positive inflection point in April? Production is strong, exports are stable, and consumption is soft, but the core conflict is still real estate and the domestic demand behind it. From a quantitative perspective, the year-on-year growth rate of industrial value added in April was the fastest in the same period in history (excluding the special year 2020), and exports also entered a recovery channel as the global manufacturing industry recovered; in terms of price, price increases for consumption and industrial products were weak, while exports were also “exchanging price for volume.” Meanwhile, the area of new real estate construction continued to decline year on year, while all second-hand housing prices in 70 cities of the Bureau of Statistics fell year on year for the fourth month.
Although addressing the downturn in real estate is not an overnight success, as far as policy responses are concerned, it is clear that we have now entered a more urgent stage. As predicted at the April Politburo meeting, with the Biden administration promulgating a new round of tariffs on China, “the complexity, severity, and uncertainty of the external environment has clearly increased.” The more external uncertainty, the more it is necessary to prevent domestic risks and stabilize the economy.
The central bank's quick action at noon (abolishing the lower interest rate limit for commercial housing loans, lowering interest rates on provident fund loans, and lowering down payment ratios) has confirmed the urgency of “stabilizing real estate,” and recent signs of “trade-in” housing and liberalization of purchase restrictions in various regions have shown that government storage at the central level is “ready to be released.” However, judging from the “pilot” situation in various regions, most of the policies are selling on behalf of housing enterprises and exchanging old houses, while many of the details of government collection and storage from the perspective of the scale of investment, profitability, and coordination between the central government and local authorities are still open to discussion. The key point is that the core of the current policy still relies on residents who are unwilling to borrow money and local governments facing pressure to convert debt, and this may not be enough. Specific aspects of the April economic data:
Industry: Technology and exports “outline” the acceleration of industrial production. Excluding 2020, which had a special situation, industrial value added with a month-on-month growth rate of 0.97% in April this year was the fastest in the same period in history. What factors contributed to the further acceleration of industrial production in April? We believe that technology and exports are still two topics that cannot be avoided.
In terms of technology, the value added of the high-tech industry in April was still ahead of the overall level compared to the previous year. Judging from the industrial value added performance of industry segments, the production situation in industries linked to technology still “dominates”. The industrial value added performance of industries, including automobiles, computer electronics, and general equipment, is better. On the export side, the year-on-year growth rate of industrial companies' export delivery value jumped from 1.4% in March to 7.3% in April, forming another strong support for the acceleration of industrial production.
Manufacturing: Compared with further acceleration in infrastructure investment. As stated in our previous report, the importance of infrastructure investment this year is gradually being replaced by investment in manufacturing, and the April year-on-year investment growth data once again confirms this logic. Although the year-on-year growth rate of manufacturing investment in April cooled slightly compared to March, the difference between it and the year-on-year growth rate of infrastructure investment is still widening further, confirming the importance of the manufacturing industry.
Similarly, in a context where confidence in private enterprises has not been fully restored, investment in manufacturing is more dependent on technology policies to “recharge” it. Since this year, the performance of private investment compared to the year-on-year growth rate of overall investment has continued to decline, so it has relied more on science and technology policies to “protect” investment in the manufacturing industry. Affected by the slight decline in manufacturing investment margins in April, the manufacturing investment performance of most industrial sub-industries in April was not as good as in March, but some technology-related industries (such as general equipment, special equipment, transportation equipment, etc.) all accelerated compared to the same period last year.
Infrastructure: The importance continues to decline. The year-on-year growth rate of general infrastructure investment in April was 5.9% (8.6% in March), continuing the previous slowdown. Among them, the infrastructure investment side clearly cooled down in April, including the two major sectors of utilities and water conservancy, environment and public facilities. In comparison, the transportation and storage sector performed slightly better.
Infrastructure under fiscal stimulus will not slow too much. Local governments are the main reason for this gradual slowdown in infrastructure investment growth. This is because the two types of infrastructure-related local bonds (that is, special bonds and urban investment bonds) were issued on a small scale in the previous period. However, some fiscal stimulus policies “supported” by the central government will hedge the extent of the infrastructure slowdown to a certain extent — for example, the issuance of additional treasury bonds at the end of 2023 will be used for project construction by the end of June, which also explains why some high-frequency indicators related to infrastructure have recently begun to show a marginal upward trend; for example, the 2024 ultra-long-term special treasury bonds will also be issued in May, and the investment area of ultra-long-term special treasury bonds also includes infrastructure projects.
The realignment of real estate is experiencing a “watershed”. Land production prices weakened and stabilized in April: First, the sales area of commercial housing in April was -22.8%, the absolute value is at the bottom of history; second, housing prices have not yet stabilized. In April, new housing prices in the 70-tier cities of the Bureau of Statistics recorded their lowest month-on-month period since 2014.
These “unusual” data may be the reason for the obvious acceleration of real estate policies in April. Recently, “trade-in” has been implemented at an accelerated pace in high-tier cities. Currently, the policy mainly focuses on housing companies' proxy sales and old housing swaps, and purchase restrictions in core cities are also being liberalized. After the Politburo meeting clarified the removal of housing stocks, the “watershed” of real estate policy has become quite clear. The key to the future is to resolve “where does the money come from” and “on what scale” issues one by one.
Consumption is inseparable from “holiday narratives.” Despite the impressive Qingming holiday spending “report card,” April Social Zero still fell short of expectations, falling to 2.3% year on year. Although affected by the misalignment of the May 1st holiday last year, it is undeniable that the overall consumption is moderated and the “holiday season is strong, weekdays are weak” is undeniable. Structurally, travel was the main drag on Social Zero in April. Among them, automobiles retreated the most, retail sales fell to -5.6% year on year, food and beverage revenue cooled to 4.4% year on year, and optional consumption of sports products, jewelry, and cosmetics also declined to varying degrees year on year.
Risk warning: Economic recovery is slow due to the slow pace of policy introduction and project implementation; overseas economies entered recession significantly ahead of schedule, and domestic exports contracted beyond expectations.
editor/tolk