China’s Stumbling Property Sector Shows Long Road To Recovery
Pressure isn’t expected to ease as data for two key sectors came in negative for July.
5 min
Copyright 2020, Dow Jones & Company, Inc. All Rights Reserved Worldwide. LEARN MORE
China’s major economic pillars wobbled in July with weakness in manufacturing and the all-important property sector, showing the pressure on a country that remains a drag on the struggling global economy.
Chinese manufacturing activity unexpectedly contracted in July, as Beijing’s stringent Covid-19 restrictions and weak demand undercut hopes for a more robust economic revival.
The official manufacturing purchasing managers index pulled back to 49.0 in July from 50.2 in June, China’s National Bureau of Statistics said Sunday. The result left the index below the 50 level that separates expansion from contraction and short of the median forecast of 50.3 among economists polled by The Wall Street Journal.
Meanwhile, a nascent two-month recovery in China’s home sales ended in July as a widespread mortgage revolt over concerns that ailing property developers wouldn’t be able to deliver still-unfinished apartments weighed on demand.
Sales at the country’s top 100 property developers fell a sharp 39.7% in July from the same period last year to the equivalent of $77.6 billion, or 523.14 billion yuan, according to data released Sunday by China Real Estate Information Corp., a Shanghai-based real-estate data provider.
July sales were down 28.6% from June, ending a two-month recovery in month-to-month sales growth. Apartment sales showed increases in May and June from the previous months as activity picked up following long Covid-19 lockdowns in Shanghai and other Chinese cities earlier this year.
The results in manufacturing and real estate, itself accounting for one-third of China’s economy by some estimates, underscored how far the country remains from any semblance of postpandemic normalcy.
Although local governments across China have grown more adept at controlling Covid-19 outbreaks swiftly and with fewer disruptions than in previous months, Beijing has reaffirmed its commitment to strict zero-Covid policies for the foreseeable future.
And while municipalities have stepped up activity to support the property sector and tamp down public anger over unfinished apartments, the central government has yet to come up with the sort of broad rescue fund that some economists say is needed.
On Thursday, the Politburo, the top policy-making body of China’s ruling Communist Party, indicated the government remains comfortable with its approach. It toughened its language on the importance of containing Covid-19 and explicitly cited political considerations in balancing pandemic controls and economic growth. It also offered little sign that it would relent from its property-sector regulatory campaign.
In mid-July, China reported that gross domestic product expanded at a meagre 0.4% annual rate in the second quarter compared with a year earlier, its weakest growth rate in more than two years, highlighting the depth of the damage caused by stringent lockdowns. The poor showing has prompted top leaders to effectively acknowledge that the government’s official GDP target of roughly 5.5% growth in 2022 is now out of reach, barring a big stimulus push that Beijing has all but ruled out.
Chinese officials speaking Sunday nodded to the challenges ahead for the economy.
“The foundation of economic recovery still needs to be consolidated,” said Zhao Qinghe, a senior official at the statistics bureau, citing insufficient market demand and weakness among energy-intensive industries as particular sources of concern.
The negative readings come as growth in the U.S. has weakened as well.
The U.S. economy shrank for a second quarter in a row, as the country’s housing market buckled under rising interest rates and high inflation took steam out of business and consumer spending.
The U.S. Commerce Department said GDP adjusted for seasonality and inflation fell at an annual rate of 0.9% in the second quarter after a 1.6% contraction in the first three months of the year.
The two consecutive declines meet a rule of thumb for a recession. While the U.S. determines recessions differently, its economy is clearly decelerating.
Economic growth in the eurozone accelerated in the second quarter, buoyed by the lifting of most pandemic restrictions even as Russia’s invasion of Ukraine sent energy and food costs surging.
The European Union’s statistics agency on Friday said the combined gross domestic product of the eurozone’s members was 0.7% higher in the three months through June than in the first quarter.
Still, business surveys for July suggest the eurozone is already experiencing a decline in economic activity, and Russian cuts to natural gas supplies would add to the pressures on the economy.
The pressure on major world economies comes as global economic activity and consumers have been broadly hurt by supply disruptions and price increases triggered by imbalances arising from the pandemic and worsened drastically by the war in Ukraine. Aggressive interest-rate increases by major central banks around the world are expected to further suppress economic activity.
In China’s manufacturing sector, only 10 of the 21 industries surveyed by the statistics bureau showed expansion in July compared with 13 in June.
China’s export sector, a key growth engine for the country’s initial postpandemic recovery, continued to disappoint. In July, the PMI subindex tracking export orders remained in contractionary territory for a 15th consecutive month.
More downside risks remain after the U.S. Federal Reserve raised its benchmark lending rate by another 0.75 percentage point in late July, its second such move this summer, in a bid to combat inflation. Tightening rates in the U.S. and other major economies threaten to stifle overseas demand for Chinese-made goods, economists say.
Joblessness among workers age 16 to 24 has soared, rising to a record 19.3% in June from 18.4% in May. The subindex tracking employment edged down to 48.6 from 48.7 in June, the statistics bureau said Sunday.
Separately on Sunday, China’s official nonmanufacturing PMI fell to 53.8 in July from a reading of 54.7 in June, the statistics bureau said. The subindex measuring service-sector activity pulled back to 52.8 in July from 54.3 in June, while the subindex tracking construction activity rose to 59.2 from 56.6.
While both subindexes remain in expansionary territory, strict social restrictions requiring, for instance, PCR testing results to board public transit or enter restaurants in many cities as well as quarantines for those traveling from one city to another, continue to cast a shadow over consumer demand, especially for restaurants, hotels and entertainment venues.
The weaker PMI readings took place against the backdrop of continued sporadic Covid-19 outbreaks in July, though the lockdowns were largely confined to less-developed regions of the country, including landlocked Gansu province in China’s arid northwest and poor, mountainous Guangxi in the southwest.
Meanwhile, the property-market weakness that began late last year has gone from bad to worse in recent weeks as home buyers across the country threaten to halt mortgage payments for unfinished apartments, which in turn has further weakened developers and some regional banks, scared off other potential home buyers and dented market confidence more broadly.
The revolt started at the end of June at a China Evergrande Group project in Jingdezhen, a city in south-central China’s Jiangxi province, where frustrated home buyers threatened to renege on mortgages on unfinished properties. Hundreds of buyers from roughly 320 projects across the country had followed suit as of July 29, according to a tally of statements from homeowners who said they would stop paying their mortgages circulating on GitHub, a Microsoft Corp.-owned coding-collaboration site.
Home buyers—some waving signs saying “Construction stops and mortgage stops!”—say the threat to halt payments is the only way to get their voices heard as projects stall and delivery times drag out. A broadly slowing economy that is biting into employment and incomes is adding to the pressure. Some buyers say they are increasingly unwilling to keep paying for a home they aren’t sure they will ever receive.
Week-over-week data put together earlier by CRIC to study the impact of the mortgage revolt had signalled the July decline. In 30 cities CRIC determined to have been seriously affected by the revolt, new-home sales dropped by 12% in the week ended July 10 from the week before, then fell another 41% in the week ended July 17.
Pressure on the government is building, but hopes among some developers, investors and creditors for a large real-estate rescue package from Beijing remain unrealized. The Politburo made clear recently that local governments are ultimately responsible for fixing the property woes in their markets.
Budget-strapped local authorities have strained to boost property demand, resorting to increasingly creative measures. Dozens of cities have lowered down payments and interest rates. Some are offering outright cash subsidies. Others have announced relief funds for cash-strapped developers or plans to take over troubled projects.
Even so, said Song Hongwei, a research director of Tongce Research Institute, which tracks and analyzes China’s real-estate market, “the sector won’t stabilize if developers’ liquidity crunch is not relieved.”
Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: July 31, 2022.
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual
Investors are taming impulsive money moves by adding a little friction to financial transactions
4 min
To break the day-trading habit that cost him friendships and sleep, crypto fund manager Thomas Meenink first tried meditation and cycling. They proved no substitute for the high he got scrolling through investing forums, he said.
Instead, he took a digital breath. He installed software that imposed a 20-second delay whenever he tried to open CoinStats or Coinbase.
Twenty seconds might not seem like much, but feels excruciating in smartphone time, he said. As a result, he checks his accounts 60% less.
“I have to consciously make an effort to go look at stuff that I actually want to know instead of scrolling through feeds and endless conversations about stuff that is actually not very useful,” he said.
More people are adding friction to curb all types of impulsive behaviour. App-limiting services such as One Sec and Opal were originally designed to help users cut back on social-media scrolling.
Now, they are being put to personal-finance use by individuals and some banking and investing platforms. On One Sec, the number of customers using the app to add a delay to trading or banking apps more than quintupled between 2021 and 2022. Opal says roughly 5% of its 100,000 active users rely on the app to help spend less time on finance apps, and 22% use it to block shopping apps such as Amazon.com Inc.
Economic researchers and psychologists say introducing friction into more apps can help people act in their own best interests. Whether we are trading or scrolling social media, the impulsive, automatic decision-making parts of our brains tend to win out over our more measured critical thinking when we use our smartphones, said Ankit Kalda, a finance professor at Indiana University who has studied the impact of mobile trading apps on investor behaviour.
His 2021 study tracked the behaviour of investors on different platforms over seven years and found that experienced day traders made more frequent, riskier bets and generated worse returns when using a smartphone than when using a desktop trading tool.
Most financial-technology innovation over the past decade focused on reducing the friction of moving money around to enable faster and more seamless transactions. Apps such as Venmo made it easier to pay the babysitter or split a bill with friends, and digital brokerages such as Robinhood streamlined mobile trading of stocks and crypto.
These innovations often lead customers to trade or buy more to the benefit of investing and finance platforms. But now, some customers are finding ways to slow the process. Meanwhile, some companies are experimenting with ways to create speed bumps to protect users from their own worst instincts.
When investing app Stash launched retirement accounts for customers in 2017, its customer-service representatives were flooded with calls from panicked customers who moved quickly to open up IRAs without understanding there would be penalties for early withdrawals. Stash funded the accounts in milliseconds once a customer opted in, said co-founder Ed Robinson.
So to reduce the number of IRAs funded on impulse, the company added a fake loading page with additional education screens to extend the product’s onboarding process to about 20 seconds. The change led to lower call-centre volume and a higher rate of customers deciding to keep the accounts funded.
“It’s still relatively quick,” Mr. Robinson said, but those extra steps “allow your brain to catch up.”
Some big financial decisions such as applying for a mortgage or saving for retirement can benefit from these speed bumps, according to ReD Associates, a consulting firm that specialises in using anthropological research to inform design of financial products and other services. More companies are starting to realise they can actually improve customer experiences by slowing things down, said Mikkel Krenchel, a partner at the firm.
“This idea of looking for sustainable behaviour, as opposed to just maximal behaviour is probably the mind-set that firms will try to adopt,” he said.
Slowing down processing times can help build trust, said Chianoo Adrian, a managing director at Teachers Insurance and Annuity Association of America. When the money manager launched its online retirement checkup tool last year, customers were initially unsettled by how fast the website estimated their projected lifetime incomes.
“We got some feedback during our testing that individuals would say ‘Well, how did you know that already? Are you sure you took in all my responses?’ ” she said. The company found that the delay increased credibility with customers, she added.
For others, a delay might not be enough to break undesirable habits.
More people have been seeking treatment for day-trading addictions in recent years, said Lin Sternlicht, co-founder of Family Addiction Specialist, who has seen an increase in cases since the start of the pandemic.
“By the time individuals seek out professional help they are usually experiencing a crisis, and there is often pressure to seek help from a loved one,” she said.
She recommends people who believe they might have a day-trading problem unsubscribe from notifications and emails from related companies and change the color scheme on the trading apps to grayscale, which has been found to make devices less addictive. In extreme cases, people might want to consider deleting apps entirely.
For Perjan Duro, an app developer in Berlin, a 20-second delay wasn’t enough. A few months after he installed One Sec, he went a step further and deleted the app for his retirement account.
“If you don’t have it on your phone, [that] helps you avoid that bad decision,” he said.
The coastal area southeast of Melbourne is providing a permanent escape as the pandemic endures.
