SINGAPORE (ICIS) – China’s economic outlook has just darkened amid disappointing October data, with a rise in domestic COVID-19 infections and a slump in the property market threatening to compound weak demand. petrochemical.
New home prices in China’s 70 cities in October fell 0.37% month-on-month, marking a 14th consecutive decline and the worst drop in seven years, according to data from the National Bureau of Statistics ( NBS) Wednesday.
On a yearly basis, new home prices for the month fell for the sixth consecutive month, down 1.6% from a 1.5% drop in September.
“China’s 16-point plan [unveiled 11 November]
to stimulate the real estate market is still the clearest indication that the government is ending its repression of the real estate market by easing the ceiling on lenders’ exposure to the real estate sector,” said Ho Woei Chen, economist at UOB Global, based in Singapore. Economic and market studies.
China has also eased quarantines and flight bans, marking a more targeted approach to its zero COVID policy and further easing of restrictions despite a spike in new cases in several major cities.
Domestic prices of polyethylene (PE) and polypropylene (PP) increased following the introduction of the measures on 11 November.
On a CFR (cost and freight) basis in China, Linear Low Density PE (LLDPE) prices have increased by $20-40/ton since the announcement, while PP prices have increased by $30/ton , according to John Richardson, ICIS senior consultant for Asia.
China, however, has yet to provide a clear timeline for an actual reopening, while the rest of the world has mostly taken a life-with-COVID approach.
“While the measures indicate that the government is paying more attention to economic growth, any short-term improvement in China’s recovery will still be limited due to the current record spike in COVID infections in cities such as Guangzhou. , Zhengzhou and Beijing as well as its adherence to a zero COVID policy and remaining strict COVID measures,” said UOB’s Ho.
Expectations of improved demand following the recent measures continued to bolster sentiment in Chinese petrochemical futures markets on Wednesday morning, with methanol futures rising 1.1%.
| Petrochemical Futures Contracts |
Price in CNY/ton (From 03:30 GMT) |
% change from previous day |
|
Styrene monomer (SM) |
8,193 |
-0.4 |
|
Monoethylene glycol (MEG) |
3,991 |
0.1 |
|
Linear Low Density Polyethylene (LLDPE) |
7,913 |
0.3 |
|
Polypropylene (PP) |
7,771 |
0 |
|
Polyvinyl chloride (PVC) |
5,908 |
0.2 |
|
Methanol |
2,605 |
1.1 |
|
Purified terephthalic acid (PTA) |
5,384 |
0.6 |
Sources: Dalian Commodity Exchange, Zhengzhou Commodity Exchange
“We’ll see many bounces in the markets that won’t last, like this week’s rally in Chinese equities and polyolefin prices on the housing bailout and tinkering with zero-COVID rules,” said ICIS’s Richardson. .
“Reasons for further short-lived rebounds could include more economic stimulus from Beijing,” he noted.
“But major economic policy resets are unlikely because of the strong commitment to ‘common prosperity,'” Richardson said, referring to the concept introduced by Chinese President Xi Jinping in 2021 to redistribute more Chinese wealth to the poor through government policies.
“And until China can re-vaccinate enough people with messenger ribonucleic acid (mRNA) vaccines, zero-COVID policies may need to stay in place,” Richardson added.
For the real estate market, earlier measures were introduced to boost funding for the sector, with 400 billion yuan (CNY) ($56.5 billion) from second-tier banks and CNY 600 billion from China’s six largest lenders. by the end of this year.
“It could take a few more months for the real estate sector to recover due to the pandemic and Beijing’s reluctance to deregulate the sector and stimulate demand for housing in major cities,” said Japanese Nomura Global Markets Research. in a note.
“Even after a recovery, new home sales could be significantly lower than before the pandemic,” he said.
In January-October 2022,
investment in real estate development fell 8.8% year on year while October ingrowth in industrial production decelerated to 5% against 6.3% in September.
RISE IN COVID-19 CASES IN CHINA
As of November 14, new local infections stood at 17,772 new local COVID-19 infections, down from 16,072 the previous day and the most since April.
All 28 provinces and four municipalities in China – Beijing, Chongqing, Shanghai and Tianjin – were actively recording locally transmitted cases.
In Beijing, the number of local cases has risen rapidly over the past week, with daily case counts on November 14 reaching 462 – the highest level since the pandemic began in early 2020.
“There is a high risk that the adjustment efforts will be offset by the implementation of additional tightening measures by local authorities, as local authorities still believe that their performance is determined by avoiding a massive number of infections” , Nomura said.
“After March 2023, reopening is more likely, but progress may be slow, painful and bumpy, and the release of pent-up demand may be moderate and settling below pre-COVID levels,” he said. declared.
The reawakening of external demand also continued to weigh on China’s economy, with October exports falling for the first time in more than two years, while imports fell due to new COVID-19 restrictions. .
October exports fell 0.3% year on year, a sharp reversal from September’s 5.7% growth, marking the worst performance since May 2020.
Imports also fell 0.7% – the weakest result since August 2020 and a reversal of the 0.3% rise in September.
World’s second largest economy slows, GDP growth expected to slow down
around 3.0%, i.e. a marked slowdown compared to the rate of 8.1% set for 2021, on the basis of projection multilateral institutions.
The downward pressure on China’s economic growth could intensify in the coming months as COVID-19 cases could rise further in response to colder weather and adjustment measures, which could lead to worse lockdowns , Nomura said.
“The easing of measures on [China’s] The Zero COVID Strategy (ZCS) could be largely offset by ZCS escalation by local authorities, as the eradication of the coronavirus is still seen as the most important performance metric for local authorities,” he said. he declares.
Export growth could also fall further due to weaker global demand and Beijing has yet to find a reliable way to revive housing demand as the ZCS continues to weigh on new home sales, added Nomura.
China posted annualized GDP growth of 3.9% in the third quarter, compared with 0.4% in the previous quarter.