China is starting to see money head abroad at an increasing rate

Over the course of this year we have become increasingly concerned about the property sector in China and the implications for the rest of the economy. Yesterday brought us more news on that front.

BEIJING, Oct 24 (Reuters) – China’s September new home prices fell for the second straight month as mortgage boycotts, a heightened debt crisis and COVID-19 curbs weighed on homebuyers’ sentiment.

New home prices in September fell 0.2% month-on-month after a 0.3% drop in August, according to Reuters calculations based on National Bureau of Statistics (NBS) data released on Monday.

On a year-on-year basis, new home prices in September declined at the fastest pace since August 2015, falling 1.5% after a 1.3% decline in August.

The housing pyramid was built on the promise of higher prices as everyone involved sang along with Hot Chocolate.

Everyone’s a winner, baby, that’s no lie (yes, no lie)
You never fail to satisfy (satisfy)

The problem now is that there are losers and we are seeing that play out in the arena of mortgage boycotts and debt problems. Also we are left wondering if we are being told the full truth about the price falls?

Exodus?

According to the Financial Times the political shenanigans over the weekend have led to this.

Wealthy Chinese are pulling the trigger on exit plans from their homeland as pessimism builds over the future of the world’s second-largest economy under Xi Jinping and the ruling Chinese Communist party.

It probably isn’t any too bright to publicly declare this bit it happened.

“Now that ‘the chairman’ is firmly in place . . . I have already received three ‘proceed’ instructions from various ultra-high net worth Chinese business families to execute their fire escape plans,” said Lesperance.

Some seem to be looking at Singapore.

The number of family offices in Singapore jumped fivefold between 2017 and 2019, and almost doubled from 400 at the end of 2020 to 700 a year later, according to Citi Private Bank. Ryan Lin, director of Singapore-based Bayfront Law, said he was approached by five families during China’s party congress last week to establish a Singapore family office, three of which are proceeding.

Of course a former bolthole isn’t what it once was.

He added that Hong Kong, long a favoured destination for Chinese wealth and elite families, had become less attractive as Beijing increased control over the territory.

Some of those have presumably ended up at Nine Elms not so far from me and I note that they now seem to be advertising in Singapore.

Prospective buyers will have an opportunity to select from just 186 units at London Square Nine Elms’ first international launch that will take place in Singapore on Oct 29-30, with Savills Singapore as the exclusive marketing agent.

There was a time that Nine Elms looked like it would be an enormous white elephant but there may be hope for it yet. With all the Malaysian money that went intothe newly reopened Battersea Power Station we may yet see something of a literal version of Singapore-on-Thames.

Returning to the issue of China a move out of property and the country poses more than a few questions.

Hang Seng

The South China Morning Post recounts what happened yesterday.

The Hang Seng Index slumped 6.4 per cent to 15,180.69 at the close of Monday trading, the lowest level since April 2009. The index suffered its biggest one-day sell-off since November 2008, marking the third time it has declined more than 1,000 points this year. The Tech Index tanked 9.7 per cent while the Shanghai Composite Index declined 2 per cent.

There was an attempt at a rally early today but it did not last in spite of some apparent official support and closed at 15.115.

*CHINA STATE BANKS ORDERED TO BUY STOCKS TO CONTAIN SELLING ( Investing.com)

The Yuan or Renminbi

This looks weak too.

China’s yuan is sliding anew and the People’s Bank of China seems inclined to let it go.
The currency traded in Shanghai weakened to 7.31 per dollar, the lowest since December 2007. That’s after the PBOC set the daily yuan fixing at a 14-year low. The yuan also fell to the lowest in more than a year against a basket of its trading partners’ currencies, a Bloomberg gauge shows. ( Bloomberg)

Some are getting rather concerned.

We just saw the largest annual depreciation in the Chinese yuan in 27 years. China is much closer to having a full-blown banking and currency crisis than winning a hegemonic war against the US. ( @TaviCosta)

There is a bit of hype in that as for example pretty much every currency has fallen versus the US Dollar. But if we return to our property theme having debts in US Dollars and repaying them with a Chinese Yuan income keeps getting harder.

Interestingly it seems to be official policy to encourage foreign currency borrowing.

Right before the PBOC released its fixing on Tuesday, the central bank tweaked a policy to make it easier for companies to seek funding offshore, effectively allowing more capital inflows.

The Economy

The release of official data has done little to calm things down.

Delayed by almost a week without explanation — although a clash with China’s Communist party congress is suspected — the announcement of 3.9 per cent GDP growth came with little fanfare. It was better than the forecast of 3.3 per cent from analysts polled by Bloomberg but still short of China’s full-year target of 5.5 per cent, already set at its lowest in three decades. ( FT)

The domestic economy does not look strong.

Growth in retail sales, just 2.5 per cent, missed forecasts as strict Covid lockdowns continued to hold back consumption. ( FT)

With other economies slowing then the star of recent times, exports, seems likely to fade.

Export data, while beating analyst expectations, nonetheless indicate a mounting challenge for the country’s recent economic model. They grew 5.7 per cent, compared with 7 per cent in August, and a further slowdown would reduce the effect of this key booster of GDP. ( FT)

Comment

There are clear signs of struggles in China and we see this from various sources.

SHANGHAI, Oct 24 (Reuters) – Tesla (TSLA.O) has cut starter prices for its Model 3 and Model Y cars by as much as 9% in China, reversing a trend of increases across the industry amid signs of softening demand in the world’s largest auto market.

Their problem is how can they put the genie back in its bottle?

From our own point of view things have also got more complex. The idea of economic growth coming from China is fading fast. But more than that the idea of it being the currency devaluer is also fading as we see Japan and the Yen.