It''s an axiom but worth re-stating: China is so utterly vast that it is nigh-impossible to make any generalisations about the behemoth. For that reason, there is a benign case - rather than willful data manipulation by the authorities - why there is so often a lack of transparency about China''s financial muscle. To wit, a report released today by Societe Generale confirmed that property prices were correcting, implying that a hard landing will be avoided. But, thanks to the country''s huge diversity, calibrating data on property prices across the board is a mammoth endeavour, providing much fodder for the bulls and bears alike, Société Générale explained.
As the report states:
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There is no question that China’s housing market has been correcting. However, it is less straightforward to assess by how much and at what speed the adjustment is occurring, due to the difficulty in compiling quality data in such a big country. Comparing data from official and private sources, the most ostensible discrepancy is seen in the magnitude of price declines.
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The report continued:
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According to the National Bureau of Statistics (NBS), new apartment prices in China’s 70 major cities have declined by less than 1.5% in simple average terms, and 1.7% in sales-volume-weighted average terms, from the peak in H2 2011... However, data from the NBS once came into question for vastly understating property price appreciation between 2006 and 2010. In comparison, Soufun, a private data provider, estimated that average residential prices in the ten biggest cities rose by more than 73% over that period of time, whereas the NBS data showed only a 31% increase.
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| Source: Societe Generale |
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... income [in China] have risen faster than property prices. Analysts at the University of California Davis suggest that disposable incomes might even be higher than suggested by official data. In an academic study by Xiaolu Wang and Wing Thye Woo, per capita urban disposable incomes were as much as 90% higher than official data in 2008. Hidden household disposable income was estimated at Rmb9.3 trillion ($1.5 trillion).
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And as property prices are intricately related to income, this prompted Viktor Hjort, head of Asia fixed-income research and head of global corporate credit strategy at Morgan Stanley, to conclude:
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“There is no broad-based property bubble in China but we can’t rule out that there aren’t bubbles in certain areas.”
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Net-net, SocGen believes that the real estate market is moving in the right direction:
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Whatever data we look at, it seems that the housing market is deflating at moderate speed, but the bottom has yet to be reached...
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The threat of a hard landing has spooked investors in and out of China. Real estate is one of the main drivers of investment growth in China, which accounts for over 50% of GDP growth. So an out-of-control real estate market would derail the economy's growth trajectory and the shockwaves would be felt globally.
And, given the ongoing eurozone crisis, the global economy can scarcely take any more bad news.