Companies across China are revealing their H1 2023 results, as required by law, detailing how they fared in the first six months of the year. What's been posted so far tells a story of struggling sectors, government intervention and coordinated social media campaigns to boost the positives and hopefully bury the bad news.
The Chinese property sector is in such a state, currently, that cities across the country are now waiving credit reports ahead of mortgage lending, according to state media reports.
Property developer Country Garden, facing default, reported a 48.9bn yuan ($6.7bn) loss for the first half of 2023 to the stock exchange on Wednesday. It raises the specter of Evergrande in 2021, facing ruin and in debt to the tune of hundreds of billions of dollars, after running wild in a loosely regulated property sector.
Country Garden is China's biggest property developer.
But if the slowdown in China's economy is sector-specific, then there may be some hope, and government interventions in recent days look to have made a slight difference. Property and construction accounts for a quarter of China's GDP.
The real concern is that the issues being uncovered in the sector are putting off homebuyers.
Yesterday, several Chinese cities announced, after guidance from the central bank, that first-time buyers could take loans without a credit check. Shenzhen, Guangzhou and Wuhan are among these cities.
The People's Daily has run an article entitled "10 Highlights of Chinese Economy in H1 of 2023," charting moments such as the first successful sea trial of the country's first domestically built cruise ship. Carmaker BYD's 140 percent profit rise is number one on their list.
Multiple bot accounts across social are also sharing these positive reports in an effort to somehow mask the very real issues being faced by everyone in the country.
Foreign investors sold a record $12 billion in Chinese stocks in August, reported the Financial Times. U.S. Commerce Secretary Gina Raimondo warned during a four-day visit to the country this week that American companies were starting to see China as "uninvestable."
China-based real estate marketplace operator Leju Holdings recorded that total revenue fell 6 percent year-on-year (y-o-y) to $159 million U.S.
"China's real estate industry remained sluggish during the first half of 2023, seeing a slight first-quarter rebound but then returning to a downward trend during the second quarter. Combined with the ongoing difficulties experienced by China's real estate developers, these factors have created significant challenges for Leju's advertising and e-commerce operations," said Leju's CEO Geoffrey He.
Larry Hu, chief China economist and managing director at Macquarie, said: "The bottom line is that China's economy is not out of the woods yet, but it's not in crisis either. The property sector is faltering while confidence is probably at an all-time low.
"External pressures remain high, with exports slowing and the yield gap between China and the US widening. That said, these headwinds are mostly cyclical rather than structural. High frequency data suggest that the economy has stabilized at a low level. Meanwhile, policy actions over the past month have been in line with the pro-growth pivot at the July Politburo meeting, although policymakers need to act more decisively to pull the housing market out of its ongoing downward spiral."
The main pain points for the Chinese economy surround the property sector. New home sales in 30 major cities in August were 56 percent of the 2019 level, and 53 percent in July.
With the property peak season of September to October now active, the next few weeks will be crucial in establishing whether central government interventions have worked, a Macquarie update said yesterday.
"The biggest policy change so far is the reclassification of first-time homebuyers, regardless of the mortgage record, which could unleash the suppressed upgrade demand. But given the weak sentiment among homebuyers as well the looming default of some major developers, the sector remains as the key swing factor for the next 6-12 months," Hu added.
Max J. Zenglein, chief economist at the Mercator Institute for China Studies (MERICS), said: "The Chinese economy is currently facing a broad, cyclical, and structural downturn. The leadership underestimated how the combination of diminishing economic prospects and geopolitical risks weighed down consumer sentiment.
"In contrast to past downturns there is little appetite for shoring up economic growth by rolling out a massive stimulus. Companies that are aligned with national strategic priorities in the 'real economy' are likely to do well, despite the current slowdown. It is the low-end manufacturing sector and consumer-oriented sectors that are suffering the most.
"The government is trying to provide a floor for the real estate sector as it must cushion the financial impact on highly leveraged real estate developers and local governments. The move should not be seen as a return to old habits. The real estate sector is currently painfully but purposely being downsized."
China's reopening after COVID lockdowns still has a long way to go, as the number of international flights in the first 29 days of August reached only 50 percent of the pre-pandemic level. While the world's second-biggest economy can recover, it may perhaps rue its strategies around the pandemic, as well as its regulatory practices. The slowing of the economic juggernaut may also explain the massive anti-corruption drive in the country at the moment, with a reported 36,000 cases brought before the courts in the first half of 2021.
Update, 09/01/23, 12:30 p.m. ET: This article was updated with comments from Max J. Zenglein.
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Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
