Analysts warned of a ‘vicious cycle’ of real estate financing issues and trust defaults that might cut 0.3% to 0.4% from China’s growth.
The US dollar hovered near 2023 highs on Asian currencies on a combination of rising US Treasury yields and nervousness about the extent of crisis in China’s property industry, which has been dragging down the yuan in spite of official resistance. “The export news was heartening and bodes well for Japan’s continued trade competitiveness,” said John Vail, chief global strategist at Nikko Asset Management in Tokyo, though he cautioned that domestic consumption indicators were soft.
A slight improvement is expected from Chinese retail sales figures due around 0200 GMT, though that may not shift a mood that is increasingly dark as things go from bad to worse for the property sector and start to spill over into other assets. Contagion already seems to have reached parts of the financial system, with Zhongrong International Trust Co, a major trust company that traditionally exposed to real estate, missing repayment obligations on some investment products.
“The chain reaction triggered by slumping new home sales may lead to a rising number of developers’ defaults, a sharp contraction of government revenue, falling demand for construction materials, declining wages…weaker consumption, and faltering financial institutions.”