SINOWEEKLYPLUS

Trump-Kim summit affirms our peace and denuclearization prediction; civil servant wages delayed as local gov’t revenue falls

SinoInsight 1
The People’s Bank of China (PBoC) and China’s two financial regulatory commissions jointly hosted the 10th Lujiazui economic forum in Shanghai from June 14-15.

In a speech, CPPCC Economic Committee deputy chairman Yang Weimin said that the risks accumulated by the property market in the early stage have now become a time bomb that could very easily blow up in the current market chaos. He added that current administrative measures cannot bring the problem under control.

On the issue of controlling housing prices, China Construction Bank chairman Tian Guoli said that “the banks are afraid, the developers are afraid, the home buyers are afraid, and the relevant departments are afraid of regulating” prices. But “everybody is afraid” of rising prices, and commercial banks need to find solutions to break the current deadlock.

OUR TAKE
The statements of Yang Weimin and Tian Guoli suggests that the property bubble has reached a point where it is scary for the Chinese authorities, yet they are helpless to do anything.

The United States Federal Reserve raising rates on June 13 also makes it tough for the Chinese central bank to choose between preserving the exchange rate or keeping property prices steady. If the PBoC opts for the former option, there would be a strain on liquidity, and the property bubble could burst. If the PBoC opts for the latter option, the renminbi exchange rate would fall sharply and exacerbate capital outflows. Either option would trigger a debt crisis.

SinoInsight 2
Recently, the finance ministry, the housing and construction ministry, and the PBoC released China’s 2017 national housing provident fund report. According to the report, the amount of overdue accumulated fund loans was 1.058 billion yuan (YoY increase of 34.6 percent), or 3.34 times that of 2014 (316 million yuan). Meanwhile, a total of 254.76 million personal provident fund loans were issued in 2017, a decrease of 22.21 percent from 2016. Loan issuances totaled 953.485 billion yuan in 2017, a decrease of 24.93 percent from the previous year.

OUR TAKE
The figures in the report indicate that people are unable to pay their mortgages—a danger signal. China’s housing provident fund offers the cheapest home loans, yet they are the hardest to obtain. When mortgage interest rates rose in 2017, the total amount and value of housing provident fund loans both fell by 20 percent, while the amount of overdue loans increased by nearly 35 percent.

The Fed is expected to raise interest rates a total of three to four times in 2018. If the PBoC also hikes rates, more and more people would not be able to pay their mortgages.

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