China struggles to combat weak consumer spending and wealth woes

China’s economic data showed momentum continued to slow last month, with lingering caution in consumer spending, plus pressure from the country’s struggling property sector.

Retail sales, a key consumption gauge, grew by just 3.9 percent year-on-year in November, well below economists’ forecasts of 4.7 percent. A little improvement in industrial activities, up 3.8%, overshadowed by a drop in investment in the real estate industry.

New home prices lost 0.3%, the biggest drop since early 2015 and third month in a row refuse. Investment in real estate in China grew 6% in the year to the end of November, compared with a 7.2% increase at the end of October.

Weakness in China’s vast property sector, which accounts for more than a quarter of gross domestic product, is weighing on the economy at a time when the government reaffirm its commitment to strict coronavirus prevention measures.

Major real estate developers have struggling to bring enough cash to repay, with several defaults in recent months, hitting market confidence.

Tommy Wu, China economist at Oxford Economics, said: “We expect the property downturn to continue into the first half of 2020 before property activity recovers somewhat in the second half. at the end of the year, when worries about defaults of real estate developers ease.”

The consultancy indicates that the number of homes started and home sales by floor area, respectively, were 22.4% and 16.3% lower in November of the same year. According to data from the National Bureau of Statistics, new home prices in China’s 70 largest cities have fallen in China’s 70 largest cities since October, but are still higher than in the same month last year.

Last week, Evergrande, the world’s most indebted developer, finally declared as default of the US rating agency Fitch after months of missing interest payments on its international bonds.

Ahead of last Monday’s group payment deadline, the People’s Bank of China injected nearly $200 billion of liquidity into the financial system by cutting the reserve requirement ratio, a critical ratio for banks. The decision is widely understood as try to calm the market about developer problems.

Officials have signaled that they will loosen monetary policy to support growth, but they are also expected to commit to measures to cool down the real estate sector and reduce debt levels.

Shimao, a more highly regarded company, is the latest developer to find itself at the center of this week’s market sell-off. The company’s $1 billion bond maturing next year fell to 64 cents against the dollar, its lowest on record.

In a statement published by its Shanghai subsidiary this week, the company said its operations remained “normal”.

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