TWS: Oct. 11, 2021

Graph of the Week | Industry

Grande Times Ahead for Chinese Home Buyers…Maybe?

The Evergrande fiasco, and worries about other developers like Fantasia, has roiled markets and served as a harsh lesson for Beijing. The lesson: don’t put your eggs in one basket. With reportedly 29% of annual GDP derived from the real estate industry and related services, Beijing’s basket is markedly overconcentrated.

Though, based upon rising real estate restrictions and tightened lending limits to property developers, it seems the government was already aware of these issues. In fact, land purchases for real estate development have fallen year-on-year since they peaked in 2018 at 164 million square meters while prices have cooled from highs in 2019. Year-to-date, growth in average purchase price has crawled to just 4%.

Starting with China’s three red lines policy that caps bank lending limits to property developers, policymakers have made it clear that they are serious about de-risking the industry. The efforts to curb real estate speculation have also gone local; Shenzhen, for example, recently attempted to cap the sales price of pre-owned homes.

Bottom line: Should the industry be able to weather the Evergrande liquidity crisis, China’s real estate industry may see clearer skies ahead as a long-term cooldown in real estate prices meets more stringent government regulations.

Economics | Policy

No Place To Call Home in the Chinese Job Market

9.1 million bright-eyed and bushy-tailed graduates in China this year are scouring for “Help Wanted” signs in vain.

Unemployment for the 16-24 age group clocked in at 15.3% in September, which ticked higher than the historical average of 12.5%. While it’s normal for youth unemployment to run high around this time of year as the annual wave of new graduates march into the job market, there are a few unique factors contributing to this year’s surge:

  • Notoriously “uneven” economic recovery left the services sector lagging while manufacturing boomed. The services sector historically serviced the most graduates but now has less spots to fill.
  • Chinese students earning degrees abroad are returning home at higher rates than normal, up 6% from last year, adding a Squid Game-like bout of competition to the job market.
  • Industry crackdowns have crippled opportunities, with the once popular private tutoring sector falling particular prey to Beijing’s crackdown on the education industry.

Bottom line: China’s unemployment rate calculations include some *cough cough* interesting exclusions that are not traditionally seen in other economies, which puts unemployment in this age bracket a couple points higher than official stats would suggest. And, while unemployment is not always the best indicator of China’s economic health, there’s already significant unrest in the younger workforce that needs to be addressed should policymakers want to tackle the more systemic issue of a quickly aging population.

Finance | Policy

“Guys I’m Serious This Time” ← Beijing on Crypto

“NO, NO, NO”…Beijing can’t say it enough. Last week, the Chinese government declared ALL cryptocurrency transactions illegal in the latest ban along its crusade against crypto. Could this finally be the end for digital gold in its largest market?

Businesses were quick to act. Alibaba announced that after October 15, shops will be banned from selling any crypto mining-related equipment. Huobi and Binance, two top-tier crypto exchanges with strong footholds in China, hastily stopped new Chinese user registrations.

Coin prices have fallen dramatically over the past week on news of the severe regulation. Just months ago, miners had begun to move away from China due to Beijing’s crypto mining ban, and the latest news may spur a further exodus of cryptocurrency firms.

Bottom line: Cryptocurrency has been a huge source of income for many Chinese traders. It’s also become a significant store of value – and its pseudonymous nature has irked lawmakers who don’t appreciate the opportunity it presents to bypass China’s strict capital controls or amass wealth untouchable – and untraceable – by the government. Still, given any Chinese user that has a VPN can trade on a host of global crypto exchanges, try Beijing might, it can’t completely cut off Chinese HODLers from the borderless world of crypto.

Industry | Policy

China’s EV Market: Out With Subsidies, In With the Dual Credit System

By prioritizing homegrown industry, China has built the world’s largest market for EVs. The fruits of coordinated policy and business support have cultivated a highly competitive market with over 300+ EV makers within the sector.

Tens of thousands of companies now work in areas related to “new energy vehicles,” and with shares of EV producers surging, China’s electric car sector is enjoying its moment in the sun.

Learn more about how China is encouraging home-grown EV brands to consolidate a larger share of the market amidst a transition from subsidies to a dual credit system in our latest China insights article:

Full Article

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