Chinese Economics Thread

[Jiang ZeminFanboy]

Someone was saying there that RMB will still appreciate 5% a year. Well, that's most likely is not the case. Last decade RMB was fluctuating between 6 per dollar to 7. In the nearby years we will see probably similar pattern. I think the only possibility to RMB go under 6 is at the end of this decade. This year we will see stable or even depreciated rmb from the current 6.3~ to USD. It all depends how many interest rate hikes by FED we will see.

 

[ansy1968]

Someone was saying there that RMB will still appreciate 5% a year. Well, that's most likely is not the case. Last decade RMB was fluctuating between 6 per dollar to 7. In the nearby years we will see probably similar pattern. I think the only possibility to RMB go under 6 is at the end of this decade. This year we will see stable or even depreciated rmb from the current 6.3~ to USD. It all depends how many interest rate hikes by FED we will see.

@ILikeChina bro what is the ideal rate 5.4 RMB to a dollar?

 

[mossen]

Someone was saying there that RMB will still appreciate 5% a year. Well, that's most likely is not the case. Last decade RMB was fluctuating between 6 per dollar to 7. In the nearby years we will see probably similar pattern. I think the only possibility to RMB go under 6 is at the end of this decade. This year we will see stable or even depreciated rmb from the current 6.3~ to USD. It all depends how many interest rate hikes by FED we will see.

Yes, the Yuan will weaken this year. The US dollar has been on an absolute tear since ~2015, but once the rate hikes are priced in, I think there will be a period of adjustment. It is a vastly overvalued currency, which shows up in record trade deficits. How is political appetite in the USA going to tolerate that for long? It devastates any export industry.

 

[mossen]

Evergrande is a sideshow. Much bigger issue is that housing is vastly overpriced across the board.

It's not just a few big cities either.



China's financial-property sector is safer than in the US since the state is more heavily involved, so any major financial crisis is unlikely to happen but a major push towards affordability is needed, not least since it will increase fertility as family formation becomes more affordable. Chinese house ownership is high because the entire family's wealth pool is tapped, but this isn't a good model. If China's price-to-income ratio fell by 50% or more, it would lessen the burden on the entire family by a great amount.

 

[Tyler]

Evergrande is a sideshow. Much bigger issue is that housing is vastly overpriced across the board.

It's not just a few big cities either.

View attachment 81862

China's financial-property sector is safer than in the US since the state is more heavily involved, so any major financial crisis is unlikely to happen but a major push towards affordability is needed, not least since it will increase fertility as family formation becomes more affordable. Chinese house ownership is high because the entire family's wealth pool is tapped, but this isn't a good model. If China's price-to-income ratio fell by 50% or more, it would lessen the burden on the entire family by a great amount.

It is the US property market that is overpriced. With higher interest rates and fed tapering, the US stock market and property market will go down quickly.

 

[AndrewS]

Evergrande is a sideshow. Much bigger issue is that housing is vastly overpriced across the board.

It's not just a few big cities either.

View attachment 81862

China's financial-property sector is safer than in the US since the state is more heavily involved, so any major financial crisis is unlikely to happen but a major push towards affordability is needed, not least since it will increase fertility as family formation becomes more affordable. Chinese house ownership is high because the entire family's wealth pool is tapped, but this isn't a good model. If China's price-to-income ratio fell by 50% or more, it would lessen the burden on the entire family by a great amount.

Yes, it is a big issue.

You can see that on average, housing affordability in China is roughly twice as bad as in the US.

But if housing prices are kept stable, and we see incomes double in China, affordability levels in China reach the same level as the US.
If incomes can rise 7% per year, they will double in 10 years.

Having Chinese housing prices drop by half is going to cause a lot more issues.

For big cities, if housing affordability doubles, then it approaches 10-12, which is comparable to a city like London.

 

[KYli]

Yes, it is a big issue.

You can see that on average, housing affordability in China is roughly twice as bad as in the US.

But if housing prices are kept stable, and we see incomes double in China, affordability levels in China reach the same level as the US.
If incomes can rise 7% per year, they will double in 10 years.

Having Chinese housing prices drop by half is going to cause a lot more issues.

For big cities, if housing affordability doubles, then it approaches 10-12, which is comparable to a city like London.

A small correction is still welcome. Don't think a 20% or more correction would be detrimental to the Chinese economy.

 

[KYli]

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[AndrewS]

A small correction is still welcome. Don't think a 20% or more correction would be detrimental to the Chinese economy.

A 20% drop is what we saw during the 2008 crash in the US.

Personally I think something like a 5% drop would be ok for the 1st year, then potentially smaller drops in future years

 

[KYli]

A 20% drop is what we saw during the 2008 crash in the US.

Personally I think something like a 5% drop would be ok for the 1st year, then potentially smaller drops in future years

US was over-leveraged during the crash in 2008. People are paying less than 5% down payment or nothing or sometime even cash incentives for borrowing. Compare with the US and China, it is not really the same.

I would say Hong Kong can offer a great example. When Hong Kong property crash during 1998, it didn't really become detrimental to the economy until it was down 50%-70%. A 20% correction is nothing in China.

China has two small corrections over the last decade. One is 5% and another one is little over 10%. Basically, both times the property prices rebound so quickly. It looks very bad for the government as it was unable to rein in the property prices.