September 2023 is a critical moment in the game between government policies and the economic cycle!
Hello everyone, I'm Lao Ding
Why is the economy so hard this year?
From the perspective of the cycle, it is actually because the current economic cycle stage is in the depression period of the big cycle, and the low point of the inventory cycle! This two-cycle low resonance, coupled with changes in the external environment, makes the future of China's economy more uncertain...
Recently, we have also seen that the government has issued a lot of policies to ease the downward pressure on the economy. For example, many places across the country have begun to relax various restrictions on real estate, and even introduced measures such as reducing the interest rate of existing mortgages... At the same time, the government has made financial subsidies in automobiles, home appliances, hotel tourism and other aspects to stimulate the recovery of consumption
Policy is desperately fighting against the economic downcycle. Next year and the future economic direction, whether it will turn upwards or low sideways, the fourth quarter of this year has become extremely critical.
1. Recent events and phenomena
Economic performance happens in the financial markets ahead of time, because there are always a few people who are more fully informed than we are. So where those smart money goes, it also represents their confidence in the future economy of this land.
There have been some events and changes in direction in financial markets recently. At the news event, we saw that Norway's US$1.4 trillion sovereign wealth fund closed its Shanghai representative office, and BlackRock, the world's largest asset management company, will close its sub-fund China Flexible Equity Fund on November 7, and it is also reported that the world's largest public fund Pioneer Navigator may completely withdraw from the Chinese market...(pictured)
In theory, these individual fund actions actually have little impact on the entire market, but when market confidence is relatively pessimistic, investors like frightened birds will be greatly affected, and the impact of the event will be amplified. So recently, we have also seen that the RMB has broken through the previous pressure level and has seen a more sustained depreciation... The USD/CNY exchange rate has only lasted for two months at 1:7.3, and now it has reached 1:7.34. And the trend remains the same...
The exchange rate also indicates that there is currently capital selling yuan. At this time, let's look at A-shares, even if many favorable measures such as reducing stamp duty were introduced before, they are still hovering at a low level. At this stage, the market capital is still weak...
In the last video, we also explained that there is actually no shortage of money in the current market, and the cost of capital in the market is very low due to the easing of LPR interest rates and fiscal policy.
It's just that at the moment, everyone lacks confidence in the future
Confidence is more expensive than gold! Therefore, it is also in the recent policy, the government's policy measures are introduced one after another, the purpose is to restore confidence...
2. Policies introduced by the government
First and foremost, it is the relaxation of real estate!
The assets that can be invested in or that the people dare to hold in China are actually very limited, and most people do not understand stocks and bonds, and real estate has been practicing housing without speculation in previous years, so that the market volume has also plummeted!
So this time the government released some last big moves...
For example, the whole country implements the policy of recognizing housing without recognizing loans, including Beijing, Shanghai, Shenzhen, Hangzhou and other major cities.
There are also some high-tier cities that have also relaxed purchase restrictions and sales restrictions... For example, since September 8, Nanjing has no longer required a certificate of purchase for commercial housing in four districts, including Xuanwu District, Qinhuai District, Jianye District, and Gulou District. Shenzhen has also relaxed restrictions on the purchase of commercial properties and business apartments for Hong Kong and Macao residents.
Some provinces and cities have begun to reduce the down payment ratio, such as Jiangsu Province as the first, and will implement the policy of reducing the down payment ratio for the purchase of the first home in many places in the province. Jiangsu Nanjing currently has only 20% down payment for the first house. Including Fujian Ningde also "recognize the house without recognizing the loan" from September 1, the down payment ratio of the first house is 20%, and some cities in Guangdong also have a down payment of only 20%.
Even in the existing housing loans, many banks such as Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, Construction Bank, Bank of Communications, Postal Savings Bank, and China CITIC Bank have also issued announcements on the adjustment of interest rates for the first set of personal housing loans in stock
All of the above is actually boosting the real estate market as a whole, because real estate is still one of China's leading industries. So stimulating economic growth from real estate is faster than anything ...
In fact, along with it, there are many places in the fields of automobiles, home appliances and other fields of financial subsidies are also increasing, and some cities are launching targeted consumption coupons...
3. What will happen to the follow-up economy? What is the logic?
I recently read the comments and attitudes on the Internet about another relaxation in real estate. Seeing that many people will be skeptical about this, if this time is really relaxed, then why was it so strict to enforce the house before not speculation...
The reason is simple, because real estate is still the pillar industry of the Chinese economy today.
All walks of life, real estate-related industrial chains, can create more than 20% of China's GDP. For every 5% change in real estate investment, the impact on the economy is about 0.6%, so houses can be sold, which can play a direct role in next year's economic recovery...
Many people were also wondering how banks could be willing to reduce interest rates on existing mortgages. In addition to political reasons, another point is that housing loans account for more than 40% of the assets of various banks, and this loan is not only a residential loan, but also a loan for developers. So if the house can't be sold, developers and residents don't have money to turn around, and the bank doesn't have a good life...
Do you remember that some time ago, many real estate companies such as Country Garden had news related to bond extensions and even defaults?
In fact, what does the current government want to see the most? It is the recovery of real estate sales. Because the default of many housing enterprise bonds some time ago has brought great hidden dangers to the economic and financial system.
The default of many major housing companies' bonds can no longer be delayed
To put it bluntly, housing companies cannot fail today, which is crucial for many local governments and local banks... Everyone is a grasshopper on a rope, sell the house, the housing enterprise will have money, there is buying and selling so that the housing enterprise has cash flow, but also let the government have some taxes, and with cash flow, the funds can be transferred in the system. A lot of things can be revived...
So now we see so many policies that point to one thing, selling houses.
Fourth, some positive directions and signals
But the restoration of confidence also requires a process, and the economic cycle will pass so easily...
Fortunately, in recent days, we can also see some positive data!
In August this year, 14,000 sets of second-hand housing were sold in Shanghai, which is the first time since March that the transaction volume of second-hand housing has rebounded after a continuous decline.
Also in August, Shenzhen's second-hand housing transaction volume recorded 3,115 sets, a year-on-year increase of 27.2%.
And with the phenomenon of Beijing and Nanjing, it can be seen that the entire real estate market is currently in a stage where buying and selling are increasing at the same time! As soon as the policy was relaxed, a large number of people began to take out food, and a large number of people took advantage of the reduction of the down payment ratio and interest rate to start buying...
We can all understand this phenomenon. At present, in the days when local policies were just liberalized in early September, Beijing, Shenzhen, and Shanghai made a good start.
At present, the transaction volume brought by the simultaneous surge of buying and selling is critical, and if the transaction volume of real estate can increase more significantly in the remaining months of this year, then next year's housing companies will be more daring to acquire land. Then the government and the people in the relevant industrial chain have income... In the second half of next year, we will see the recovery of the economy.
It is also this logic, if there is no sustained increase in transaction volume in the real estate market in the fourth quarter of this year... The phenomena I'm talking about are hard to come by.
Remember this sentence: the direction and intensity of next year's economic recovery depends on the real estate transaction volume in the fourth quarter of this year!
My main point for the rest of the year is that we will first see some slight recovery in the capital markets in the fourth quarter of this year, and after about the second quarter of next year, the capital markets may see the light of day more and more. If real estate sales in the fourth quarter of 2023 go smoothly enough, then the fundamentals of China's economy will recover, and it is expected that it will be in the second half of next year...
At a time when policies are already so loose, extend the time to three or five years to look at the future.
It can be said that today's brief hesitation and confusion will not affect future recovery and optimism... This is the power of the cycle!
I'm Lao Ding, friends, see you in the next issue