Chart of the Week: Chinese Construction & Land Acquisition Falling
Over the last 10 years, the Chinese economy was drugged into growth through excessive amounts of investment. At its peak, capital expenditure made up 48% of GDP, an unprecedented level, and in my view, represented a massive misallocation of capital. Slowing levels of investment (mostly construction) have driven declines in related areas, including commodities, machinery and cement production.
While housing sales in Tier 1 cities like Beijing and Shanghai have grown in the last few months, and prices there are up, they represent only about 12% of the Chinese housing market. They don’t reflect the overall construction pace in the economy, which is moribund. There is still excess housing inventory, lackluster pricing and slowing sales throughout the vast majority of the economy.
The Chinese economy has not stabilized; it is still slowing and the latest round of rate cuts and liquidity injections by the People’s Bank of China (PBoC) will have only a marginal impact. Working through that misallocation and deleveraging the debt will be a multi-year task.
These themes are explored further in a new paper, “China: Have We Reached Bottom Yet?”
This blog post is provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Loomis, Sayles & Company, L.P. This information is subject to change at any time without notice.