In southern China, it’s the season of “plum rains”, when wet weather helps the fruit ripen—but also causes severe flooding. This spring, China’s all-important housing market, which supports around a quarter of the economy and props up the price of commodities like iron ore and copper, is also looking leaky. Prices gains in top tier coastal markets weakened last month for the first time since January.
The ebbing of house price growth comes after two months of surprising buoyancy in the markets. Strong gains in February and March came as Beijing clamped down hard on money leaving the country, leaving more funds sloshing around inside China.
The consequent boost to speculative coastal housing markets like Beijing and Shanghai is now losing steam. So-called tier one housing prices rose just 0.3% on the month in April, half the speed of March.
More worryingly, the consumer debt explosion of 2016 which has underpinned the housing market is finally showing signs of rolling over. Growth in medium- and long-term lending to households slowed for the second month in a row in April, notes China Economist Julian Evans-Pritchard at Capital Economics, after a massive ramp up over the past 18 months. Other April consumer data was soft—retail sales growth slowed marginally to 10.7% and automobile and mobile phone production lost momentum too.
For sure, price gains in April still accelerated in the lower tier Chinese cities which account for about 60% of the market. That will help shore up construction in the short run and support steel demand. Steel and cement output growth both rose in April, defying the overall trend of slower industrial growth.
Still, amid the spring rains, more frugal consumers are washing away price gains in top-tier Chinese cities. If the weakness spreads to the multitude of inland cities which really drive China’s commodities demand and support growth, investors should brace for further weakness in metals and debt problems in the industrial sector.
Write to Nathaniel Taplin at email@example.com