This is the second article of the Economic Review 2020, which focuses on the conflict between the consumer market and the real estate market. As we all know, since the official launch of the “real estate destocking” policy at the beginning of 2017, residents’ debt to buy houses is the second pillar that supports China’s positive economic growth (the first pillar is government debt). 2020 is over, and it is necessary to make a full-year review to see if people can still consume and buy houses at the same Time.
Before I start the text, I’ll take the trouble to clarify: the data for this article comes from the official website of the National Bureau of Statistics.
The first thing I put out is the table of urban residents’ income and expenditure from 1990 to 2020. You can take a good look at it, especially at the year-on-year growth rates of income and expenditure, which in 2020 are the lowest in nearly 20 years, even lower than in 1998, when the economy suffered major difficulties and forced the layoff of millions of workers in state-owned enterprises (the Great Unemployment).
(Note: The number of urban resident population in 2020 has not yet been announced, so I have projected an increase of 10 million people. Considering that the number of migrant workers in 2020 will be significantly reduced by more than 5 million, and the urbanization process will be significantly slowed down, 10 million new people is a more reasonable figure.
In 2020, urban residents’ income will increase by only 3.5%, narrowly missing the annual 2.5% consumer price increase. And consumer spending shrinks by 3.8%, not just the first contraction in consumer spending since 1990, but the first in 49 years! This data set is unparalleled in its ugliness. This means that urban residents have voluntarily compressed their daily consumer spending while their income has lost its growth potential. (To explain: consumer spending here does not include spending on housing.)
This is reflected in the specific consumption data, of course, is the significant shrinkage of key consumer goods. Let’s start with the most important everyday consumer product: cell phone sales.
For the year 2020, China’s cell phone sales shrank by 20.8% year-on-year, the second largest contraction since data became available, and there was no improvement in the second half of the year compared to the first half. Cell phones are an important tool for the Home office and were supposed to achieve positive growth under the strict control of the Epidemic, but the people just couldn’t afford to get a new phone this year and had to make do with their old ones, leading to the current situation of such a sharp contraction. From the trend, cell phone sales have been shrinking for four years in a row, and cell phone sales in 2021 will not be much better. This is the reason why companies like Xiaomi are increasingly inclined to do information eco-chain, earning money in the game share, wearable and set-top box fields. OPPO and vivo are doing very average information chain business, and the year 2021 is expected to be very difficult.
The next thing I want to give is the beer index, which I am particularly concerned about. Beer is the favorite of the grassroots people in urban and rural areas, and is the ultimate expression of the strength of consumer power. Drinking beer and chewing on skewers and bragging is the highest dream of Life from the bottom white collar worker in the office building to the senior clamp worker in the factory. Therefore, the annual domestic beer production can most intuitively reflect the consumption power of the most common people.
China’s beer production shrank by 9.4% year-on-year in 2020, continuing the trend of shrinkage since 2014. As evidenced by the continuing trend of shrinking cell phone sales, it is almost indisputable that the consumption power of the general public is continuing to wane.
Against this backdrop of active consumption compression, the balance of income and expenditure of urban residents barely achieved positive growth, increasing from 14,296 yuan in 2019 to 16,827 yuan in 2020, an increase of 17.7%, which seems to be not bad. In 2020, the urban residents are willing to reduce the consumption expenditure necessary for living, but also to maintain the positive growth of the balance of income and expenditure, the purpose, of course, is To continue to buy houses!
The following table shows the sales volume of commercial housing market and people’s housing expenditure in China since the reform of commercial housing market was launched in 1998. The annual housing expenditure here is projected according to the 20-year average principal repayment method, and the interest rate is projected at 6%, which is not different from the actual situation.
According to the projection, the total expenditure on home purchase in China in 2020 will be $13.90 trillion, compared with $12.45 trillion in 2019, an increase of 11.6%, firmly maintaining the growth momentum from 1998 to the present. It’s pretty bullshit that home purchase spending is still growing significantly against the backdrop of a significant contraction in consumer spending. In the eyes of the Chinese people, it is really a matter of scrimping and saving to buy a house. Buying a house is the top priority in the life of the people of China, there is no one.
Next, let’s compare the housing expenditure with the income and expenditure balance of urban residents to see what percentage of the income and expenditure balance is spent on housing, that is, the housing burden rate. As regular readers know, we do this comparison once a year. It is especially important to understand the evolution of the affordability of homeownership in the context of this year’s compression of daily consumption by the general public.
(To clarify: there is a small rural household population that also chooses to purchase a home in towns, but this population has basically worked and lived in towns for a long time before, and has long been considered statistically as the permanent urban population, and their income has been included in the income of urban residents)
In 2020, the residents’ total expenditure on home purchase will be 13.90 trillion, which is 96.2% compared to the balance of 14.44 trillion urban residents’ income and expenditure, which is the third highest level ever, although not as exaggerated as over 100% in 2019. This is still a figure reached only in the context of urban residents’ compressed daily consumption expenditure. And the cumulative home purchase burden rate of urban residents, that is, the balance of income and expenditure over the three decades from 1990 to the present, is already 84.8%, which has been swallowed by the real estate market. According to this trend, in just five years, the little coffin money that urban residents have saved up with great difficulty will be completely eaten up by the real estate market.
What do these figures mean? It means that from 2020 onwards, the relationship between the daily consumption market and the real estate market has constituted an absolute antagonism. To continue to maintain the stability of the real estate market, the field of daily consumption will have to shrink! And, if this situation does not change radically, within 5 years, most of the industries, except the real estate market, will have to close down.
Is this prospect possible? Is this not nonsense? If China really allows this to happen, it will be a big mess. So the continued suppressive attitude of top-level policy towards the real estate market since 2020 is obvious. First, in mid-2020, three red lines were set for real estate companies to strictly suppress their debt ratios; by the end of the year, two more red lines were set for banks’ real estate loans, limiting the total percentage of real estate-related loans they would issue. On the whole, China intends to squeeze the funds flowing to the real estate market through these financial control measures, and keep more funds in the consumer sector.
On the people’s side, the firm belief in real estate is not easily broken at all. In particular, the people’s expectations of buying anti-inflationary housing, firm simply incredible. 2020 national consumer price increase of only 2.5%, but the people themselves know that prices have risen to the sky. Previously, the old man in the street barber stalls push a plate inch as long as 20 yuan, now no 30 yuan simply can not get down. Ask the hairdresser why the price increase? Master justified: “Because the price of meat, I want to eat meat.” For so many years, the only housing prices can catch up with the speed of Inflation, the people in addition to any risk hedging means are not. The company’s main business is to provide a wide range of products and services to the general public. What can the people do besides continuing to scrimp and save to buy a house to fight inflation?
Not all problems, can be solved. Many times, let the conflict eventually erupt, let the wealth into nothing, is the real way the world works ah.
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