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China’s Mortgage Crisis Paralyzes Construction as Majority of Unfinished Buildings Remain Unfinished

It has been a year since the wave of unfinished construction projects hit China. Most affected developments have remained unable to resume work or meet delivery dates. Both citizens and banks have lost confidence in developers’ ability to address the issue. The Chinese government has not disclosed the nationwide count of unfinished projects. A survey revealed completion rates of about 56 percent in South China and 40 percent in North China, while Southwest and Central China had rates of only 15 percent and 16 percent, respectively. Henan Province had the lowest rate at 11 percent.

Xu Shirong, a professor at Taiwan’s National Chengchi University sees the unfinished building crisis as a political problem. Local influential figures engage in real estate transactions and development, attracting funds from banks under the influence of local governments. Xu believes relief measures have been aimed at reducing losses for upper-class developers who have influence on public policy.

The crisis emerged in 2019 due to increased government regulations leading to liquidity problems for real estate companies. Homeowners stopped making mortgage payments, triggering a financial crisis. Relief funds were introduced, but developers faced challenges in obtaining them, particularly when some were asked to repay loans. Only a few developers secured financing support from the “16 Financial Measures” policies.

The allocated relief funds of 400 billion RMB ($62 billion) are considered inadequate to address the crisis. Real estate prices have dropped significantly, and banks face risks when holding collateral. The motivation to buy houses has decreased due to factors such as the U.S.-China tech war and the pandemic’s impact on the economy. Commercial properties are difficult to rent out, affecting the sale of residential properties.

Developers’ promotions have not yielded expected results and people lack confidence in unfinished buildings due to their poor quality and a lack of confidence in real estate market policies. Local governments rely on real estate for their economies, and unresolved unfinished projects could burden their finances and create imbalances in urban development.

Source: Voice of America, June 20, 2023
https://www.voachinese.com/a/majority-of-china-s-stalled-residential-projects-yet-to-resume-20230620/7144861.html

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After 27 Years, Carrefour Closed Its First Store in Shenzhen

Well-known Chinese news site Sina (NASDAQ: SINA) recently reported that the first Carrefour store in Shenzhen and the second in China ceased operations on June 10. This old store located in the Nantou area of Nanshan has been with the Shenzhen people for 27 years. Just last month (May), Carrefour’s first member store in China, the Shanghai Chengshan Road Store, also suddenly announced it was closing its business. China’s hypermarket crisis has intensified, and Carrefour has been closing its stores nationwide on a large scale. In the first quarter, 33 stores were closed, including the first member store in China. This is just one of the many stores that Carrefour has closed recently. At its peak, Carrefour had a total of 321 stores in China, with sales of RMB 49.8 billion (around US$6.99 billion). Its number of stores, each single store’s performance, its revenue, and other factors., once surpassed its top rival Wal-Mart. As of the end of March, Carrefour China had 114 stores left. Carrefour opened its first foreign-funded supermarket chain in China and became the originator of hypermarkets. In September 2019, the Chinese company Suning spent RMB 4.8 billion (around US$674 million) equivalent to Euros to acquire 80 percent of Carrefour China’s equity, and Suning should have completed the acquisition of all remaining equity by the end of 2022. The transformation and upgrading of Carrefour China may not be worth looking forward to.

Japanese Supermarket AEON also closed its Beijing store, the first one it opened in China back in 2008. US Economist David Huang told the Epoch Times that, based on his visits, retail business in Shanghai, Guangzhou, Shenzhen, and Wuhan cities is running poorly and sales at many supermarket stores are just at the same level as those in the COVID period.

Sources:
1. Sina, June 11, 2023
http://news.sina.com.cn/s/2023-06-11/doc-imywxhhi3381882.shtml
2. Epoch Times, June 19, 2023
http://cn.epochtimes.com/b5/23/6/19/n14019252.htm

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Reduction of China’s Buying Is Likely to Cause Price Drop in the World’s Grain Market

Nikkei Chinese reported that, according to the U.S. Department of Agriculture (USDA), China’s effort to increase its domestic soybean and corn production will drive down the global market price of grain.  China has cancelled orders of a cumulative 1.1 million tons of U.S. corn that were scheduled to be imported from late April to mid-May, or 7.4 percent of the U.S. annual exports to China.

China’s reduction of purchases and the expected U.S. harvest took the futures price of corn  on the Chicago Mercantile Exchange down to around $5 per bushel in mid-May. This was the lowest point since October 2021 and 30 percent down from the peak price in the spring of 2022.

Soybean’s price also fell similarly as China also canceled deals.

Among agricultural products, China can roughly stay self-reliant on rice and wheat, but it has to import other products. Bejing is the world’s largest importer of soybeans and corn. It imports 59 percent of the global import volume and 14 percent of corn.

Source: Nikkei Chinese, June 12, 2023
https://zh.cn.nikkei.com/politicsaeconomy/commodity/52591-2023-06-12-05-01-11.html

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Cross-Region Fiscal Transfer Puts Poor Regions In More Debt

An article by a Chinese author was circulating on the Internet. The article pointed out that. although China implemented a cross-region fiscal transfer mechanism, the better developed regions provide a large amount of financial aid to the underdeveloped regions to help them develop their economy. This system does not make the poor region prosperous but rather, it puts them in more debt.

The article used Qinghai Province as an example. Qinghai received a “fiscal transfer” (aid) of 147 billion yuan (US$ 21 billion) in 2022, 7.6 times what it received in 2010. However, its disposable income per capita was 27,000 yuan in 2022, only 3.1 times the amount in 2010. This indicates that the “transferred” money didn’t directly get into people’s wallets. The reason was because the receiving regions spent the money on large projects instead, which may not directly lead to improving people’s livelihoods or may cause unnecessary waste. In the meantime, the receiving regions also borrowed additional money to finance those projects (the transferred money was not enough). As a result, the more the “transfer” money comes, the more the receiving region is in debt.

Source: China Digital Times, May 16, 2023
https://chinadigitaltimes.net/chinese/696035.html?utm_source=dlvr.it&utm_medium=twitter

Briefings | | |   Economy/Resources Government/Politics

Xi’s Speech Revealed Beijing Is Preparing for the Possibility of Being Excluded from the International Market

Xinhua reported Xi Jinping’s visit to Inner Mongolia from June 6 to 9. In one speech he gave, Xi stated that China’s talk of domestic economic circulation (focusing on the domestic economy) is the strategy when China is excluded from the international market, indicating that the top Chinese leaders are discussing and preparing for such a possibility.

The Xinhua report said:

In the midst of various foreseeable and unforeseeable “storms” and “turbulent waves,” the most important thing for us is to do well is our own thing. General Secretary Xi Jinping gave important words to use: “To build a new (economic) development pattern, the first thing is to get the major domestic circulation right, which is the fundamental solution. (Talking about a) ‘double circulation’ economy (business with other countries and business within China) is not to close the door (of China), but rather when others do not open the door to us, we can still live and live better. We open our door. Whoever comes to cooperate with us is welcome.”

General Secretary Xi Jinping talked about the road to (China’s) rejuvenation under the new situation: “Some countries want to do hegemony; they want to do monopoly, and want us to follow them as their vassals. Our Chinese nation must revive! We must continue to overcome difficulties and go to the next level!”

Source: China’s Government Site, June 10, 2023
https://www.gov.cn/yaowen/liebiao/202306/content_6885568.htm

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China’s Marriage Rate in 2022 Plummets to a 37-Year Low

China’s Ministry of Civil Affairs has released its quarterly statistics, revealing that the number of marriages in 2022 was 6.833 million, representing a decrease of 10.5 percent or 803,000 marriages compared to 2021. This marks the lowest number of marriages recorded since 1986 when the statistics were first published. It also marks the ninth consecutive year of decline since the peak in 2013 when there were 13.469 million marriages, indicating a significant drop of 49.3 percent over the past nine years.

Several factors contributed to this rapid decline in marriages. First, there is a trend of postponing marriage and childbirth, leading to a rise in the average age of first marriages. The average age of first marriages in China was 24.89 years in 2010, but it increased to 28.67 years in 2020. Second, there has been a decline in the number of individuals of marriageable age, affecting the pool of potential spouses. Additionally, changes in societal attitudes and the impact of the epidemic are also influencing factors.

The declining marriage rate will have profound implications for China’s future birth rate, particularly the first-child birth rate, which fell below 5 million for the first time in 2021, reaching 4.683 million births. The National Health Commission attributes this decline to the prolonged education and increased employment pressure faced by the younger generations born in the 1990s and 2000s, many of whom grew up and worked in urban areas.

Overall, the decreasing number of marriages in China indicates a significant shift in societal dynamics and will have long-term consequences for the country’s demographics.

Source: Central News Agency (Taiwan), June 12, 2023
https://www.cna.com.tw/news/acn/202306120030.aspx

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China’s Unannounced Cremated Remains in Q4 2022

The Chinese Ministry of Civil Affairs (MOCA) has released civil affairs statistics for the fourth quarter of 2022 after a significant delay. However, unlike previous years, they did not disclose the cumulative number of “cremated remains” for the entire year of 2022. This has raised suspicions about the number of people who died from the epidemic during that period.

China’s National Bureau of Statistics had previously announced that 10.41 million people would die in 2022, based on data collected from November 2021 to October 2022. This data did not include the COVID-19 outbreak that occurred from November to December of the same year.

The Ministry of Civil Affairs has typically published civil affairs statistics every quarter, and the statistics for the fourth quarter are usually released by April of the following year at the latest. However, the statistics for the fourth quarter of 2022 were not released until June 9, and the cumulative number of “cremated remains” for 2022 was not disclosed as usual.

The ministry has not provided any explanation for the delay or the omission of the cremation data. Some independent media outlets have highlighted this unusual situation but have refrained from criticizing the authorities for potentially hiding the number of COVID-19 deaths.

According to previously released data from the Ministry of Civil Affairs, the number of cremated remains in the first three quarters of 2022 was 4.776 million, a 10 percent increase compared to the same period in 2021.

The cremation rate in China for 2021 was 58.8 percent, showing a 3.1 percentage point increase from 2020. However, the ministry has not announced the cremation rate for 2022, although estimations from the funeral industry suggest it could be over 60 percent.

Since the Ministry of Civil Affairs has not disclosed the number of cremated remains for the fourth quarter of 2022, it is impossible to estimate the number of deaths during that period. Therefore, the exact number of people who died from the epidemic during the outbreak remains unknown.

Source: Central News Agency (Taiwan), June 13, 2023
https://www.cna.com.tw/news/acn/202306130381.aspx

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China’s May Total Exports Declined while Exports to Russia Increased

Well-known Chinese news site Sohu (NASDAQ: SOHU) recently reported that China’s General Administration of Customs just released import and export data for May. In U.S. dollar terms, China’s exports fell 7.5 percent year-over-year in May, turning negative again after two months. The impact of the pandemic is in the past, but the troika that promotes China’s economic development, investments, consumption and exports – have all encountered tremendous pressure this year. Also in May of this year, China’s total imports and exports reached US$501.19 billion, a year-over-year decrease of 6.2 percent. The trade surplus was US$65.81 billion, narrowing from last year’s by 16.1 percent. The fastest growing export destination for China in May was Russia, with an increase of 114.32 percent year-over-year, hitting a new record high. Exports to Africa increased by 12.94 percent, and exports to the UK increased by 3.73 percent. Other than those, exports to other major countries, regions, and economies all fell sharply in May. Exports to the United States, the European Union and ASEAN fell by 18.2 percent, 7.0 percent and 15.9 percent year-over-year respectively. The ten countries/regions/economies with the fastest year-over-year decline in cumulative exports from January to May were Taiwan, Canada, the United States, New Zealand, Italy, France, Hong Kong, Germany, the European Union, and the Netherlands. Also, China’s share of U.S. foreign trade has  declined, continuing its downward trend. China accounted for 15.4 percent of U.S. goods imports in the 12 months through April, the smallest share since October 2006.

Sources:
(1) Sohu, June 7, 2023
https://www.sohu.com/a/682988626_114984
(2) Lianhe Zaobao, June 8, 2023
https://www.kzaobao.com/cngov/2023-06/08140491.html

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