China's fixed asset investment (FAI) and retail sales growth have remained sluggish so far this year as falling home prices continue to restrain property investment and public spending.
China's investment income rose 3.6% year-on-year to 28.7 trillion yuan (US$4 trillion) in the first seven months of this year, according to the National Bureau of Statistics (NBS). Investment by state-owned enterprises (SOEs) increased 6.3% year-on-year, while private investment stagnated.
Private investment stagnated as a 10.2% decline in real estate investment offset growth in other sectors.
Excluding real estate investment, China's private investment grew 6.5% year-on-year in the first seven months of the year, while FAI increased 8%.
The National Bureau of Statistics said on Thursday that retail sales, a key indicator of China's domestic consumption, rose 3.5 percent to 27.4 trillion yuan in the same period.
Sales at convenience stores, shops and supermarkets increased by 5.2%, 4.5% and 2% respectively, but sales at department stores and brand shops decreased by 3.8% and 1.6% respectively.
Online sales of physical goods rose 8.7 percent to 7 trillion yuan, accounting for 25.6 percent of total retail sales, while online sales of food and clothing jumped 19.7 percent and 6.3 percent, respectively.
“Since people can no longer make money in the real estate and stock markets, they have lowered their expectations for the return on their assets,” the Guangdong-based writer who goes by the pen name “Dafuji” wrote in a post on Thursday. “It's natural that they don't want to spend money.”
“People need to know that real estate, the stock market or inflation is going to spike in order to be willing to spend more,” he said. “It all depends on whether the Federal Reserve starts a rate-cutting cycle in September.”
He said with mortgage rates below 3% and rental yields above 3%, people will have an incentive to enter the property market.
Most Chinese banks are currently offering home buyers mortgage rates of 3.1% to 3.7%, with some in Guangzhou offering as low as 2.9%, while rental yields are around 1% to 2%, media reports say.
Falling real estate prices
According to the National Bureau of Statistics, home prices in 64 of China's 70 largest cities by population fell year-on-year in the first seven months of this year. In the secondary market, home prices fell in all of China's 70 largest cities by population.
The index of new home prices fell 4.9 percent in July from a year earlier, the biggest drop since June 2015, and the 13th consecutive month of declines, according to Reuters calculations.
The National Bureau of Statistics also said China's property sales in the first seven months of the year fell 18.6 percent from a year earlier to 541.5 million square meters and 24.3 percent to 5.33 trillion yuan.
“At present, most property indexes are still falling, meaning the market adjustment is continuing,” Liu Aihua, spokesperson and chief economist at the National Bureau of Statistics, said at a press conference on Thursday.
Liu said the central government will continue to promote measures to ensure the healthy and stable development of the real estate market.
She said these measures include:
Previously announced plans to buy unsold homes and turn them into social housing, new plans to allow local authorities to decide their own property regulations, and ongoing plans to allow property developers to complete construction work and deliver homes to customers.
On July 30, the Political Bureau of the Communist Party of China Central Committee, at a meeting chaired by General Secretary Xi Jinping, said that China's economy is “increasingly adversely affected by changes in the external environment, while effective domestic demand remains insufficient.”
The report said various risks and potential dangers remain in key sectors, along with challenges arising from the replacement of traditional growth drivers with new ones.
The meeting pointed out the need to strengthen business cycle adjustment, accelerate the comprehensive implementation of decided policy measures, and be ready to launch a series of “phased policy measures” in a timely manner.
Yuan Da, deputy secretary-general of the National Development and Reform Commission, said at a press conference on Aug. 1 that the “phased policy measures” include a government program to allocate 300 billion yuan of ultra-long-term special treasury bonds to expand existing trade-in and equipment upgrading policies.
The plan, announced on July 25, will at least double subsidies for the purchase of new energy and conventional fuel vehicles to 20,000 yuan and 15,000 yuan per vehicle, respectively, and will also provide subsidies for upgrades to a range of facilities, from farm machinery to apartment elevators.
However, the 300 billion yuan budget represents just 0.3% of last year's total financial product trading and retail sales of 97.45 trillion yuan.
Money from Hong Kong
The same day the Communist Party's Politburo met on July 30, President Xi Jinping wrote a letter urging Hong Kong businessmen to boost investment in mainland China and contribute to the country's reform and opening up.
Also on July 30, Fan Hanting, a researcher at the Chinese Academy of Social Sciences, proposed in a paper that a committee be established to govern the Guangdong-Hong Kong-Macao Greater Bay Area to require everyone within the area to use the same currency and ID system.
The article was later removed from the internet. Pro-Beijing academic Shao Xinbo said Fang's proposal was bold but inappropriate because it would extend Hong Kong capitalism into Guangdong province.
On August 6, Financial Secretary Chan Mao-po and representatives from Hong Kong's business community held a seminar on “Learning about the spirit of President Xi Jinping's letter”.
Meanwhile, Hong Kong-listed CK Infrastructure said on Wednesday it had received approval from the UK Financial Conduct Authority for a secondary listing on the London Stock Exchange.
CKI Chairman Victor Li, the eldest son of 96-year-old billionaire Li Ka-shing, said on Thursday that the company has the ability to use international capital to invest in Hong Kong or mainland China whenever huge investment opportunities arise.
In the late 1970s, when then-leader Deng Xiaoping called for the opening up of the Chinese economy, Li Ka-shing was one of the first Hong Kong businessmen to start investing in China.
Read: Chinese statistics show shift from FDI to overseas investment
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