Recent stream of positive economic data from China indicates the nation’s growth has stabilized (see discussion). There has been some debate around the reasons behind this sudden improvement. One of those reasons is the government’s recent push into new infrastructure projects as well as additional funding for existing projects.
Reuters: – “We will quicken building steps on projects under construction, actively push forward new projects and make preparations for follow-up projects,” the cabinet said.
Policymakers have already stepped in with several measures aimed at stabilising the economy and building a platform for urbanisation in the face of a slowdown in growth, including quickening railway investment and building public housing.
Recent economic data have shown some of the impact of those policies, with factory output in August hitting a 17-month high and retail sales growing at their fastest pace this year.
As part of its plans, China will finish building 73,000 km of sewage pipelines and will raise the volume of sewage treated in cities to 85 percent by 2015, besides completing 80,000 km of gas pipe networks.
Government stimulus has certainly been effective. But there is another driver of stronger growth in China: the property bubble. Just as was the case in the US, property bubbles can provide an enormous boost to the economy. Of course we all know how that movie ends. But China’s increasingly affluent middle class just doesn’t seem to care. Their priority is not be be “left behind”, as prices take off to new highs.
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Time: – Prices for new homes in China rose in August to their highest level this year, challenging efforts by the government to cool the market while supporting one of the economy’s most robust sectors.
New housing costs rose in 69 out of 70 major Chinese cities. The three largest — Beijing, Shanghai and Shenzhen — saw prices soar by 15-19% compared to last year, well above the national average of 8.3%, according to data released by the National Bureau of Statistics on Wednesday.
Some analysts feel that the concerns are overblown because with increasing numbers of people moving into urban areas, demand should remain strong.
CNN: – … other analysts insist that fears of a bubble are overstated. Hundreds of millions of Chinese are expected to move from rural areas to cities over the next decade, they say, and demand is likely to remain strong.
Perhaps. But it is unlikely that most people moving into China’s cities will be able to afford these prices – particularly if speculative buying continues at the current rate. Consider for example how housing prices have risen in the largest cities over the past year.
The ISI Group: – We see the property sector as continuing to be as dangerous in 2013 as in 2012. On-going official ad hoc interventions make anticipating the winners and the losers more about guessing Beijing’s policy steps than about basic company fundamentals.
The improvement in China’s economic growth is certainly welcome news for the global economy. Nations such as Australia, South Korea, Brazil and others are sure to benefit. But it is also important to understand what’s driving that growth and how sustainable the expansion may be going forward. That’s why the frothy property markets in China should be a cause for concern.
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