Yesterday's GDP growth numbers out of China whilst showing a slowdown from a year over year growth rate of 9.7% in 1Q11 to 8.9% in 4Q11, still look reasonably good, some would describe it as a ‘soft landing'. But under the surface there are some nasty trends in Chinese Real Estate, which accounts for approximately 13% of Chinese GDP. As avid China watcher Patrick Chanovec noted recently
In November, Chinese steel output was down -8.8% month-on-month, down for the sixth month in row. More importantly, it was down -0.6% year-on-year, indicating this was more than just a seasonal or partial fall-off from the all-time highs it hit in the first half of 2011, which were driven in large part by demand for cheap rebar for construction. Apparently, the demand that drove that boom has almost entirely disappeared. Interestingly, according to one report by Shanghai Security News, steelmakers say that actual sales in 2011 failed to match official "social housing" construction data. Figures released by the China Iron and Steel Association last week indicate that steel output continued falling in December, by 3.87% month-on-month.
The China Iron and Steel Association recently announced that its iron ore price index has fallen 22% in the past four months, since the beginning of September, while iron ore inventories at Chinese ports rose to 96.8 million tons by the end of 2011, up 32% from the year before (Chinese iron ore imports were still up 10% y-on-y in December, but analysts expect buying to slow in coming months, due to flagging demand).
Cement output in November grew 11.2% y-on-y, but that represented a significant fall-off from 17.2% y-on-y expansion for the first 11 months as a whole, and the 17.3% y-on-y growth the industry saw in November 2010. Glass also saw a similar deceleration, growing 7.1% y-on-y in November, compared to 17.0% y-on-y from the first 11 months.
Newly released year-end figures show that Beijing's overall revenues from land sales in 2011 dropped 35.7% compared to 2010, despite robust sales in the first half of the year. Land sales revenues for residential projects plunged even more steeply, by 55.4%, while the average auction price for residential land dropped 30.5% (from RMB 7,317 per sq. meter to RMB 5,088). In Shanghai, total land sales revenues dropped 20.0% y-on-y, and the average price of residential land plummeted 41.0%.
In an article yesterday, Chanovec goes on to make some projections about Chinese GDP growth in the event that year over year real estate construction leveled off at zero in 2012. With that assumption, Chanovec predicts that Chinese GDP would fall to 6.6% and that is assuming no other sectors of the economy would be affected, which of course is unrealistic at best.
With Australia's two-speed economy barely muddling through, a slowing Chinese economy could provide significant headwinds. It will be interesting to see if the likes of BHP a forecast of demand for commodities out of China for the rest of the year when they report half year results next month.