China Stabilizes, in the Shadow of Country Garden and Evergrande
China’s economy no longer resembles a newly paved parking lot: Things are moving again and green shoots are creeping up through the cracks. But sustaining that could be tough if major property developers keep cracking apart too. Official data released Wednesday showed the Chinese economy grew 4.9% year-over-year in the third quarter and 1.3% quarter-over-quarter. The latter figure was nearly twice as fast as the second quarter’s 0.8% increase. China’s headline growth figures should always be viewed with a healthy dose of skepticism. But several other data points, ones less squarely in the political limelight, also hinted strongly at a better outlook.
Most important, consumer lending jumped sharply in September: Medium- and long-term consumer loans outstanding, a proxy for mortgages, rose by 324 billion yuan, equivalent to about $44 billion. This was the most since January and the second most in nearly two years. Household risk aversion and a frozen housing market have been the key factors holding back the Chinese economy this year. Other consumer indicators also improved. Growth in retail sales accelerated by nearly a full percentage point and unemployment ticked down to 5%, from 5.2% in August.
The downturn in industry also appears to be bottoming out, which could lend further support to the job market: Investment growth in manufacturing on a year-to-date, year-over-year basis accelerated for the second month in a row. In the construction sector, the employment component of the purchasing manager’s index jumped nearly two index points—the first rise since May—although it is still below the 50-point mark separating expansion from contraction. All of this, along with modestly better home sales and starts in September, shows that more aggressive measures to support the housing market since late August are having some impact. Easier terms for second-time mortgage borrowers are especially important.
The problem, of course, is that even though construction, the job market and mortgage lending all apparently improved in tandem last month, property developers are still in deep, deep trouble. And any fragile improvement in household sentiment could be undermined if Country Garden, the nation’s largest developer in 2022, continues to follow Evergrande EGRNQ 3233.33%increase; green up pointing triangle down into a black hole of debt and unpaid contractors—leaving a trail of undelivered apartments and unhappy households in its wake.
Country Garden itself didn’t benefit much from the modest bump in nationwide floor-space sales in September—its contracted sales, in value terms, were down 81% year-over-year. And early consumer and housing market signals from October are mixed. Tourism spending per traveler over the long Golden Week holiday was lower than in 2019, for example. Beijing has a couple of other aces in the hole. Provincial governments are beginning to refinance more high-interest debt, which could open up additional headroom for infrastructure spending in late 2023.
But in the end, the job market needs to keep improving and consumers need to keep spending. These trends would be difficult to sustain if the property market were to take another dive. China’s economy regained a bit of momentum in the late summer, but it is far from out of the woods.
