China Crisis?

Is housing the only aspect you really need to know about China?

Key Points:

·     China’s macro data should come with a health warning. Their GDP number, for example, comes out quicker than the US, and is never revised.  Mostly, it’s a political statement of intent, not an independent economic measure of activity.

·     China’s economy is built on the twin pillars of exports and high levels of domestic investment, particularly in the residential housing market.

·     Since the beginning of COVID restrictions, China’s export levels have been struggling, particularly to developed markets such as the USA and Germany.  Over the last 3 months, US imports from China are -28% lower than a year ago.

·     For internal dynamics, one simply needs to look at housing to see how China is fairing domestically.

·     For an economy literally built on residential developments, a good place to start is residential new build rates. The chart to the left is the ‘official’ data of cumulative YTD square footage build and looks at the annual change per month over a 2yr period.

·     May 2023 saw build rates 60% lower than 2 years ago, and this collapse in activity has been persistent for the last 2 years. Note – the different ‘gaps’ in the chart occur because China does not release monthly data for January and February due to variances in the Chinese New Year date.

·     As long as this data continues, it’s hard to feel positive about a China bounce back without some form of meaningful stimulus.