Housing prices rise in only 8 Chinese cities, analysts see room for more rate cuts from PBOC

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A round-up of the top stories in China’s economic and financial press for the week ending 22 March 2024:

Loan prime rate remains unchanged in March, observers see room for cuts in future  (Securities Daily

The loan prime rate (LPR) remained unchanged in March, after the 5-year print fell by 25 basis points in February.

On 20 March, the People’s Bank of China (PBOC) authorized the National Interbank Funding Center to announce that the 1-year LPR was 3.45%, and the 5-year LPR was 3.95%. Both quotes remained unchanged compared to the month previously. 

Wen Bin, chief economist at China Minsheng Bank, said that the rate for PBOC’s medium-term lending facility (MLF) serves as the anchor interest rate for the LPR, and any changes in the MLF have a direct impact on the LPR.

Given factors such as external pressure to stabilize the exchange rate and improvement in the domestic economy, PBOC’s continuation of “consistent prices and contractions in volumes” for its MLF operations significantly reduced the likelihood of a reduction in the LPR quotes for the current month. 

Although the LPR remains unchanged this month, analysts generally believe that there is still the possibility of further reductions in the policy interest rate in future, as well as room for the LPR to decline. 

Only 8 Chinese cities post gains in new housing prices in February, Shanghai prices rise for 21 consecutive months (Cailianshe

The real estate market continued to cool down in February, with housing prices continuing to languish. 

Home price data for 70 cities across China released by the Bureau of Statistics shows that in February 2024, the number of cities with falling house prices accounted for a large proportion.

Only eight cities saw new home prices rise in month-on-month terms, for a decline of three from the previous month. The number of Chinese cities that posted a fall in new home prices was 59, for an increase of 3 from the previous month. 

2 cities saw MoM increases in pre-owned home prices, while 68 cities saw decreases.

“In February, the trend of marginal improvement in commercial residential sales prices was still there, and the sentiment of rapid decline in housing prices has passed, but overall housing prices still lack the impetus to rise.” said Guan Rongxue, senior analyst at Zhuge Data Research. .

The month-on-month decline in prices for new and second-hand houses in 70 cities both narrowed in February. 

The price of new houses fell by 0.36% month-on-month, with the decline narrowing by 0.01 percentage points from the previous month. 

The price of pre-owned homes fell by 0.62% from the previous month, with the decline narrowing by 0.05 percentage points from the previous month.

According to figures from Zhuge Research Institute, as of February, new home prices in Shanghai have risen for 21 consecutive months and for 12 consecutive months in Xi’an.

Personal income tax revenues drop 15.9% YoY in January – February (Ministry of Finance

From January to February, the national general public budget revenue was 4.4585 trillion yuan, for a year-on-year decline of 2.3%, excluding the impact of special factors such as the tax deferral for small, medium and micro enterprises in the same period last year, which raised the base, and some tax reduction policies introduced in the middle of last year.

The main tax revenue items were as follows:

  1. Domestic value-added tax was 1.4958 trillion yuan, for a year-on-year decrease of 5.3%.

  2. Domestic consumption tax was 406.8 billion yuan, for a year-on-year increase of 14%.

3. Corporate income tax amounted to 1017 trillion yuan, the same as the same period last year.

4. Personal income tax was 326.2 billion yuan, for a year-on-year decrease of 15.9%.

5. Value-added tax and consumption tax on imported goods totalled 289.6 billion yuan, for a year-on-year decrease of 1.3%. Tariffs amounted to 37.7 billion yuan, for a year-on-year decrease of 6%.

6. Export tax rebates amounted to 433.9 billion yuan, for a year-on-year increase of 23.9%.

7. Urban maintenance and construction taxes were 107.4 billion yuan, for a year-on-year decrease of 4.7%.

  8. The vehicle purchase tax was 51.6 billion yuan, for a year-on-year increase of 29.8%.

Sales of consumer goods rise 5.5% in January – February, foreign trade up 8.7% (Chinese government

From January to February, total retail sales of consumer goods amounted to 8.1307 trillion yuan, for a year-on-year increase of 5.5%.

National online retail sales reached 2.1535 trillion yuan, for a year-on-year increase of 15.3%.

From January to February, foreign trade totalled 6.6138 trillion yuan, for a year-on-year increase of 8.7%. Exports were 3.7523 trillion yuan, for an increase of 10.3%; imports were 2.8615 trillion yuan, for an increase of 6.7%.

 In February, the national urban surveyed unemployment rate was 5.3%, an increase of 0.1 percentage points from the previous month and a decrease of 0.3 percentage points from the same period last year.

High-quality enterprises should issue more bonds overseas: China’s planning commission (Shanghai Securities Journal)

On 14 March the National Development and Reform Commission (NDRC) issued the draft version of the “Notice on Supporting High-quality Enterprises to Issue Medium and Long-term Foreign Debtsto Promote High-quality Development of the Real Economy” (关于支持优质企业借用中长期外债 促进实体经济高质量发展的通知 (征求意见稿)). 

The Opinions seeks to actively support high-quality enterprises to borrow foreign debt if they hold leading positions in their sectors, have strong credit, and play a leading role in driving high-quality development of the real economy.  

Yuan Haixia (长袁海霞), executive director of China Chengxin International Research Institute, said that China still has relatively large space for utilizing foreign debt, especially corporate foreign debt. 

China’s securities authority issues four new directives for improving capital market quality (Futures Daily

The China Securities Regulatory Commission (CSRC) recently issued key four policy documents:

  • The Opinions on Strictly Controlling Issuance and Listing Access to Improve the Quality of Listed Companies from the Source (Trial) (关于严把发行上市准入关从源头上提高上市公司质量的意见(试行)). 
  • The Opinions on Strengthening Supervision of Listed Companies (Trial) (关于加强上市公司监管的意见(试行)). 
  • The Opinions on Strengthening the Supervision of Listed Companies (Trial) (关于加强证券公司和公募基金监管加快推进建设一流投资银行和投资机构的意见(试行)). 
  • The Opinions on Strengthening Supervision of Securities Companies and Publicly Raised Funds and Accelerating the Establishment of First-class Investment Banks and Investment Institutions (Trial). 

Li Chao, deputy chairman of CSRC, said the formulation of the documents focused on three areas: 

  1. Focusing on the overall goal of accelerating the development of a safe, standardized, transparent, open, dynamic and resilient capital market.
  2. Firmly grasping the main line of strengthening supervision, preventing risks, and promoting high-quality development.
  3. Adhering to systematic thinking and comprehensive policy implementation.

Chinese cental bank: new loans hit 6.37 trillion yuan in January-February, M2 rises 8.7% (People’s Bank of China website

At the end of February, the balance of broad money (M2) was 299.56 trillion yuan, for a year-on-year increase of 8.7%. The balance of narrow money (M1) was 66.59 trillion yuan, for a year-on-year increase of 1.2%. 

The balance of base money (M0) in circulation was 12.1 trillion yuan, for. a year-on-year increase of 12.5%. Net cash injection in the first two months of 2024 was 756.6 billion yuan.

In the first two months of 2024, renminbi loans increased by 6.37 trillion yuan. In terms of sectors, household loans increased by 389.4 billion yuan, of which short-term loans decreased by 134 billion yuan, and medium and long-term loans increased by 523.4 billion yuan. 

Loans to enterprises (institutions) increased by 5.43 trillion yuan, of which short-term loans increased by 1.99 trillion yuan, medium and long-term loans increased by 4.6 trillion yuan, bill financing decreased by 1.25 trillion yuan, and loans from non-banking financial institutions increased by 429.4 billion yuan.

Is there still room for rate cuts? Medium-term policy rate remains unchanged in March – what signal does this end? (Diyi Caijing

On 15 March, the central bank carried out 13 billion yuan of open market reverse repos operations and 387 billion yuan of medium-term lending facility (MLF) operations, in order to “maintain sufficient and ample liquidity.”

The MLF interest rate remained unchanged in March, and the central bank’s attitude towards maintaining reasonable and sufficient liquidity remained unchanged.

Golden Credit Rating said the comprehensive cut to the required reserve ratio implemented on 5 February, released 1 trillion in long-term funds, enhancing the credit extension capacity of banks in the short term. 

On 20 February, the LPR quotation for more than 5 years was significantly reduced by 0.25 percentage points, which will drive new loans to households. 

Mortgage interest rates and medium- and long-term corporate loan rates have fallen even further. 

As a result, monetary policy at the beginning of the year has fully shifted in the direction of stabilizing growth and stabilizing the property market. We are currently in a period of observing the effect of the policy. This is the reason why MLF rates have remained stable since the beginning of the year.

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