Economy/Resources - 101. page

Security Times reported that, in the first 11 months of 2018, the sales of housing reached 12.95 trillion yuan ($1.94 trillion), breaking the 10 trillion mark for the third consecutive year. In the article, it stated that, as the real estate industry has been growing, domestic economic land dependence has become more and more serious. Looking at the ratio of housing sales revenue to GDP over the years, in 2017, the ratio reached 16.16 percent. This data means that real estate generated approximately 16 yuan per 100 yuan of GDP.

In 2009, the domestic housing sales ratio and the ratio of real estate development investment to GDP, both exceeded 10 percent for the first time in history. It is known that 2009 was the first year that the 4 trillion economic stimulus plan was launched. Between 2008 and 2017, sales of housing only declined. In 2014 and in 2017 it increased by more than 433 percent compared to 2008, while total real estate investment surged to nearly 11 trillion yuan in 2017, an increase of 252 percent.

According to the National Bureau of Statistics, sales of housing in the first 11 months of 2018 reached 12.95 trillion yuan, an increase of 12.1 percent. If we use 10 percent of the growth in housing sales for the full year of 2018 and a GDP growth rate of 6.5 percent, the ratio of housing sales to GDP would have reached a record 16.7 percent last year. Meanwhile according to the statistical data, in recent years, the ratio of state-owned land use rights as a percentage of national finance revenue, has continued to exceed 20 percent, or even 34 percent. Taking 2017 as an example, the state-owned land use rights transfer accounted for 28.97 percent of the national fiscal revenue. This data means that the government has generated 29 yuan per 100 yuan in revenue from sale of the land.

Source: Security Times, January 18, 2019
http://news.stcn.com/2019/0118/14807368.shtml

Due to the downward pressure on China’s economy in 2019, as well as the central government’s tax cut effort, China’s provinces and cities have lowered their fiscal revenue growth targets. Many places have planned to tighten their belts.

Provinces such as Jiangsu, Beijing, Sichuan, Henan, Hebei, and Fujian have lowered their 2019 revenue growth targets, vis-a-vis the 2018 growth rate.

Sichuan’s budget report states that the economy faces a large downward pressure in 2019, and this makes fiscal revenue growth more difficult. At the same time, with the implementation of a large scale tax cut and fee reduction policy, the public budget of 898.4 billion yuan (US$132 billion) for the whole year still cannot make ends meet. The growth of Sichuan’s public budget revenue in 2018 was 9.3 percent; in 2019 it was down to 7.5 percent.

The growth of Beijing’s 2019 fiscal revenue target was also reduced to 4 percent from 6.5 percent growth last year. 2019 will see a reduction of Beijing’s fiscal income of about 30 billion yuan (US$4.4 billion). With even more aggressive tax cuts and fee reduction measures, pressures will continue on the growth of fiscal revenue.

Jiangsu lowered its revenue growth target from 5.6 percent in 2018 to 4.5 percent in 2019.

In Hubei, the level of three major types of public expenses – buying and using government cars, overseas trips, and official receptions – face a projected reduction of 5.6 percent.

Source: Central News Agency, January 24, 2019
http://https://www.cna.com.tw/news/acn/201901240168.aspx

Xiang Songzuo is a Chinese academic and an economist. He serves as the Chief Economist of the China Agriculture Bank and is a professor at the Renmin University School of Finance. He has become known for asserting that China’s GDP growth was only 1.67 percent in 2018.

Recently, Xiang made another speech on the reasons why China’s economy slid so badly in 2018:

First, tightened government financial control caused many companies to face a shortage of capital supply. However, this was not the main reason.

Second, China’s stock market dropped 30 percent and lost 7 trillion yuan (US $1 trillion) in value in 2018. Xiang felt that the scale of the stock market crash in China over the past ten years is comparable to the drop in the U.S. in 1929. Xiang pointed out that, in the past ten years, Chinese companies’ growth has not been based on improvements in technology or growth in profits or assets, but rather on borrowing from banks. He quoted Zhu Yunlai, son of former Primer Zhu Rongji, who stated that China’s total debt exceeds 600 trillion yuan (US $90 trillion). Chinese companies just do not make money. However, this was still not the main reason.

Third, the government’s inclination to eliminate private ownership and expand state owned companies has greatly hurt private companies’ confidence and their incentive to grow. In Xiang’s view, this was the most important reason.

Fourth, the trade war with the U.S. was an external reason.

Xiang also warned that nowadays Chinese have become addicted to playing with debt and high leverage financing. This is actually a mirage and will collapse soon. When all people all of sudden realize that the assets (e.g. real estate property or financial products) that they bought are not worth that much, everyone will try to escape (and avoid big financial losses), but by then nobody will be able to escape.

A YouTube video showed a Chinese person commenting that, in 2018 the economy in Liaoning Province went downhill dramatically. The setting was in a meeting, but the person’s identity is unknown. From the way he talks, he may be a member of the People’s Political Consultative Conference (PPCC) or a government official.

He stated that Shenyang, the capital city of Liaoning, didn’t make its GDP target in 2017 and then its economy slid downhill in 2018 (this means that it didn’t make the 2018 goal either, since Chinese officials always want GDP to surpass the previous year).

“When the PPCC members came (to the meeting), they all lowered their heads and avoided the question of making money this year. There were no such scenes (as in early years) where one said ‘I made 50 million yuan (US $7.5 million)’ and another one said ‘I made 800 million.’”

“I take full responsibility to tell you all, that all I gained in 2018 was only age but no wealth. However much you invested, that is how much you would lose. We now claim (Shenyang) made 1 trillion yuan (US $150 billion) in GDP (in 2018). Dalian city’s economic situation was much better than (Shenyang), but it only reported 700 billion yuan. We shouldn’t give too excessively big a number in our government report.”

The Chinese National Bureau of Statistics official website recently published its December PMI numbers for China’s manufacturing industry. The overall PMI index landed at 49.4 percent. The PMI New Orders sub-index was 49.7 percent. The Raw Material Inventory sub-index was 47.1 percent; and Employment sub-index was 48 percent. The data indicates the first decline in the manufacturing business in 29 months.

Well-known Chinese financial company Caixin, which conducts its own independent and globally recognized Chinese PMI data collection, also published its December numbers. The overall Chinese manufacturing PMI index reached 49.7, which was the first time it had fallen below 50 since Caixin’s June 2017 report. The trending is in line with the National Bureau of Statistics. Caixin’s New Orders sub-index showed the first decline since July 2016 and New Export Orders showed a nine-month-in-a-row decline. The Employment sub-index has been showing a decline for 62 months.

In the meantime, in December, the Guangdong Provincial Department of Industry and Information Technology suddenly stopped publishing its manufacturing PMI numbers for the province. The event sent a shockwave across the media, since Guangdong is one of China’s largest manufacturing provinces. The government later explained that the move was per the requirements of the National Bureau of Statistics.

PMI (Purchasing Managers Index) is an indicator of financial activity reflecting purchasing managers’ acquisition of goods and services. A PMI number below 50 typically reflects a decline.

Sources:
1. Chinese National Bureau of Statistics official website, December 31, 2018
http://www.stats.gov.cn/tjsj/zxfb/201812/t20181231_1642475.html
2. Caixin, January 2, 2019
http://pmi.caixin.com/2019-01-02/101365402.html
3. Phoenix New Media, December 17, 2018
https://finance.ifeng.com/c/7iiBpVpQFWM