原文刘向
China's economy
Coming down to earth
Chinese growth is losing altitude. Will it be a soft or hard landing?
Apr 15th 2015 | ZHENGZHOU| Online extra中国人民解放军
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WHEN “60 Minutes”, an American television news programme, visited a new district in the metropolis of Zhengzhou in 2013, it made it the poster-child for China’s property bubble. “We found what they call a ghost city,” said Lesley Stahl, the host. “Uninhabited for miles, and miles, and miles, and miles.” Two years on, she would not be able to say the same. The empty streets where she stood have a steady stream of cars during the day. Workers saunter out of offices at lunch. Laundry hangs in the windows of the subdivisions.
华硕u36The new district (pictured above), situated on the eastern side of Zhengzhou, a city of 9m in central China, took off when the provincial and city governments relocated many of their offices there. Then, high schools with university-sized campuses began admitting students, drawing families to the area. Last autumn one of the world's biggest children's hospitals opened, a gleaming facility with cheery colours and 1,100 beds. Chen Jinbo, one of the area’s earlier residents, bemoans the lost quiet of a few years ago. “Rush hour is a hassle now.”
The success of Zhengzhou’s development belies some of the worst fears about China’s overinvestment. What appear to be ghost cities can, with the right catalysts and a bit of time, acquire flesh and bones. Yet it also marks a turning-point for the Chinese economy. Zhengzhou still has ambitious plans, not least for a massive logistics hub around its airport. With such a big urban area a
lready built up, though, vast construction projects
have a progressively smaller impact on the economy. The city’s GDP growth fell to 9.3% last year from an average of more than 13% over the preceding decade. The downward trend will continue. As the capital of Henan, one of the country’s poorest provinces, Zhengzhou had anchored the country’s last, large, fast-growth frontier. Its maturation signals that the slowing of China’s economy is not a cyclical blip but a structural downshift.
When growth flagged in powerful coastal provinces a few years ago, the poorer interior picked up the slack. It was large enough to do so, for a time. Henan and the other inland provinces that have a similar level of income per head have 430m residents, nearly a third of China’s total. If they were a sovereign country, they would form the world’s
seventh-biggest economy, ahead of both Brazil and India. The far west is China’s final underdeveloped region but it carries much less weight: it makes up less than a tenth of the national population.
So the question for China is not whether growth will rebound to anything like the
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double-digit pace of the past. Instead, it is whether its slowdown will be a gradual descent—a little bumpy at times but free from crisis—or a sudden, dangerous lurch lower. Figures released on April 15th revealed a further loss of altitude: GDP in the first quarter grew by 7% from a year earlier, the lowest since the depths of the global financial crisis in early 2009. Signs of stress are emerging: capital is leaving the country, public finances are more stretched and bad debts are rising.
Yet that is not the full story. China also has impressive underlying strengths and a new determination to fix its most harmful distortions. “Growth will keep on declining,” says Xiang Songzuo, chief economist with Agricultural Bank of China, a state-owned lender. “Our main wish is that the decline go smoothly.”
Storm warning
The darkest cloud over China is its property market. Factoring in its impact from steel to furniture, it has powered nearly a fifth of the economy. Now, it is set to subtract from growth. House prices have fallen by 6% over the past year, the steepest drop since records began. It is not the first time that the property market has looked fragile, but previous dips were driven by deliberate policies to cool the market. In recent months, it has been the opposite: demand has failed to respond to a series of boosts such as cheaper mortgage rates. This has prompted predictions of a coming crash.
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Problems are real but such disaster warnings rest on a misdiagnosis. The oft-heard idea that China is sitting on mountains of unsold homes is an exaggeration. Those making this claim point to the gap between property sales and construction. Sales of residential housing last year were 20% higher than they were in 2009, but projects under way have more than doubled since then, according to official data. If true, it would take five years to consume the pipeline of homes being built, up from three before the global financial crisis.
But many of those projects are in fact little more than holes in the ground. Some have been halted for a lack of funds, others because developers want to wait to sell into a stronger market. The evidence for this is actual construction activity, indicated by property completions as well as cement production (see chart 1). These are a much closer fit with sales. It will take 16 months to clear China’s inventory of new homes at the current sales rate, up from ten months when the market was in better shape, according to E-House, a property consultancy. This points to a deterioration but hardly a nightmare.
That China’s property market is not about to collapse under the weight of oversupply is, of course, good. The bad news is that its growth is stalling. The housing sector started to take off early this century after the government allowed ownership of private property. Mass migration to cities added to demand; China’s urbanisation rate has more than doubled to 55% today from 26% in 1990. Both these factors are fading. Many Chinese have already upgraded to snazzier flats than their original state-issued boxes. And though millions continue to move to cities every year, the pace of urbanisation is slowing.
Many analysts now expect housing sales, which have reached about 10m units annually, to start falling soon. There will still be homes aplenty to build but fewer with each passing year. Those who w
ere over-optimistic about the longevity of the boom are paying a price. Chinese steelmakers had created capacity for 1.2 billion tonnes a year. The 820m tonnes produced last year may well be the top.
Property is thus turning from a driver into a drag for the Chinese economy. Wang Tao of UBS, a bank, estimates that every ten percentage-point drop in construction growth cuts as much as three percentage points off GDP. She forecasts a deceleration of about half that size this year.
The more sedate reality is sinking in. In the south of Henan province, the county of Gushi had wanted to expand its central city to reach a population of 1.2m, from 500,000 now. Construction work is feverish. The clang of hammers and the growl of diggers reverberate throughout its streets. But with housing sales failing to meet expectations, Gushi has lowered its sights. It is aiming instead for a population of 800,000. Muddy fields on the outskirts that had been zoned for development seem destined to remain untouched.
Dragged down by debt
One way China could rekindle its property market is by using its banks to pump cash into the economy, as it did in 2008 when the global financial crisis struck. Yet that would be a dreadful mistak
e. Officials have their hands full already trying to deal with the legacy of the previous lending binge. Total debt has surged, rising from about 150% of GDP in 2008 to more than 250% today (see chart 2). Increases of smaller magnitudes were precursors to financial turmoil in Japan in the 1990s and much of the West over the past decade.
With debt clogging up the economy’s gears, Chinese lending has grown less potent. In the six years before the financial crisis, each yuan of new credit resulted in about five yuan of economic output. In the six years since the crisis, each yuan of credit has yielded three of output. Banks report that a mere 1.25% of their assets have soured, but investors price their shares as if the true number is closer to 10%. Within banks themselves, there is distrust. “The headquarters don’t believe the provinces,” says a credit officer with a major lender.
Until recently China could grow its way out of debt trouble. That is no longer an option. With inflation low and the economy weakening, nominal growth is half as fast as a few years earlier. The financial system is also far more complex than it was in the late 1990s, the last time China had a surge in bad debts. State-owned banks accounted for almost all lending back then. Since the financial crisis their share has fallen to less than two-thirds. Loosely regulated “shadow banks” make up much of the rest.
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