According to the latest data released, China’s economy is still highly dependent on foreign countries, and exports still play a large role in driving the economy; while the main pillar of the domestic demand market is still real estate. This seems to be the opposite of what Xi Jinping, the Communist Party’s general secretary, has been emphasizing: “independent innovation” and relying on the domestic demand market as the main driver of economic growth.
The Wall Street Journal reported on April 14 that a major driver of China’s economic growth is still foreign exports.
Data released Tuesday (April 13) by the Communist Party’s General Administration of Customs showed that China’s exports jumped 30.6 percent in March from a year earlier, but the data came from a year-over-year basis and is misleading. Goldman Sachs estimates that China’s exports contracted 6.6 percent in March from a year earlier, adjusted for seasonal factors, while combined exports in January and February rose 8.5 percent from a year earlier.
The Wall Street Journal believes that the slight decline in exports in March from a year earlier, a fluctuation that was already expected by the market and may be a temporary phenomenon: China’s Purchasing Managers’ Index (PMI) in February showed the first decline in new export orders since last August, while China’s PMI in March showed that new export orders grew again. With another massive fiscal stimulus package in the U.S., U.S. demand for goods looks set to outpace supply for quite some time, and China’s exports are likely to rebound.
In terms of China’s domestic demand market, Chinese domestic demand has not shown signs of strength, except for the real estate market, which remains the sector supporting China’s domestic demand.
The China Index Research Institute released the 100-city house price index on April 1, showing that the average price of new residential units in March held steady at 0.20% year-over-year, while the year-over-year increase continued to expand to 4.07%; the average price of second-hand residential units also expanded in the same and year-over-year terms compared to the previous month.
According to the report, the average price of new residential units in 100 cities in China was RMB15,916 per square meter in March, up 0.20% from the previous month, with 76 cities up, 23 cities down and one city unchanged from the previous month; year-on-year, it rose 4.07%, an increase of 0.06 percentage points from the previous month.
The average price of second-hand residential units in 100 Chinese cities was RMB15,654 per square meter, up 0.44% from a year earlier, or 0.16 percentage points more than last month. 70 cities rose, 25 cities fell, and 5 cities remained unchanged from last month.
Capital Economics noted that most of the increase in imports was driven by industrial staples, indicating an upturn in heavy industry and construction. Meanwhile, overall credit growth softened again in March, but household lending (traditionally dominated by mortgages) has still risen sharply in the past few months. Home prices are also accelerating: Prices in 70 large and medium-sized cities rose an average of 0.4% in February from a year earlier, the fastest pace of increase since last August.
However, increasing regulation by Communist authorities could put pressure on China’s real estate market and industrial metal prices in the second half of the year.
Communist regulators are already signaling more discontent. In early April, the Communist Party’s Ministry of Housing and Urban-Rural Development summoned leaders of five major cities to criticize their mismanagement of local real estate markets, according to GaveKal Dragonomics. The consultancy noted that the recent unbelievably fast growth in production and business loans could mean that some of that cash is flowing back into the real estate sector.
Meanwhile, despite the rhetoric of industrial self-reliance and rebalancing by the Communist authorities under the slogan of “internal circulation,” the structure of China’s economic recovery remains the same: its external dependence remains high, with growth driven by external markets, while the main growth of the domestic demand market is still driven by real estate investment. The main growth of the domestic demand market is still driven by investment in real estate.
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