Editor's note: In 2021, the world, China, all walks of life and even everyone have deeply felt the "unprecedented changes in a century".
"Not afraid of the raging winter, not afraid of the hot summer sun", the new year is coming, we are convinced that China's economy and real estate will still overcome all difficulties, calmly face any situation, and achieve more eye-catching results.
In view of this, Viewpoint New Media has, as always, planned and launched the annual report "Winter Rule", reviewing and summarizing the adjustments and changes of benchmark housing enterprises in the past year, and looking for opportunities for a new year.
At the same time, we invited a number of economists with global vision and rich experience to conduct in-depth dialogues and interpret the way forward for China's economy and real estate from their perspectives.
China's real estate industry has bid farewell to the era of rapid growth under a series of policy regulations in the past, and the Evergrande incident has triggered a domino effect, making the market usher in a major turning point in 2021.
Wang Rui, senior economist at ANZ, believes that the central government's policy signals clearly reflect the desire to reshape the entire property market, but this does not mean that the market will continue to fall, but develop steadily. As the central government has been advocating, adhere to the positioning that houses are used to live, not to speculate, stabilize land prices, stabilize house prices, stabilize expectations, and promote the direction of stable and healthy development of the real estate market.
Hong Kong in December was not cold, and on the day of the visit, the wind was a little strong, standing in the lobby of The Exchange Plaza Phase III waiting for Anzbank senior economist Wang Rui.
She joined ANZ in January 2017 as a Senior China Economist, where she focuses on China's macroeconomic and offshore RMB market dynamics, although it has not been high-profile in the Hong Kong media scene. Like the ANZ bank she works for, although the scale of its business in Asia is one of the best among several Australian background banks, its style is also low-key.
Wang Rui, who stepped out of the elevator lobby, wore a long dress and a blazer, dressed very young and fashionable, different from the impression of the economist, more than serious, more kind. As the elevator rose to her office floor, she personally beckoned us to the conference room to sit down and begin the day's visit.
At the beginning, Wang Rui briefly introduced the structure of ANZ Bank, and then directly cut into her professional field, China real estate.
"Although the regulatory policy has lasted for many years, the real role will be seen from the second half of 2021, especially after evergrande's default risk." And now the policy signal is obviously stronger, that is, to reshape the entire real estate market, in fact, this signal has also been sent in 2016 and 2017, but at that time the market did not combine with the medium- and long-term development goals to understand. ”
Wang Rui's voice is not large, but the speed of speech is very fast, there have been some columns mentioned, fast-talking people are smart, and logical and clear expression of what they want to express, she gives people the feeling that it is this kind of person, methodically from the previous causes and consequences to point out the current situation of the inner housing market.
Wang Rui pointed out that, for example, like 2021, common prosperity and three distributions are put together with China's 2035 vision. So in the housing area, the home of the resident is consistent with the concept of common prosperity.
So she believes that both within China and from the perspective of foreign capital, it may be slowly realizing that the general direction has changed, so any policy adjustment may be short-term, reducing volatility.
In fact, since 2010, the government has begun to regulate the real estate market to stabilize house prices, land prices and market expectations. In order to avoid financial systemic risks, since 2016, we have adhered to the positioning of "housing and not speculation", and adopted measures such as restricting purchases, restricting loans, strict price management, and regulating market order.
Since 2020, the government has successively introduced a series of policies that have a very far-reaching impact on the real estate industry, such as guiding the price of housing transactions, and stabilizing the price of the property market by attacking speculation. In August 2020, the "three red lines" were proposed for the financing of key housing enterprises, and at the end of 2020, the upper limit of the concentration of real estate loans by financial institutions was proposed, which profoundly changed the real estate financial landscape.
Wang Rui also said that this series of regulations also clearly reflects that the central government does not want China's credit cycle and real estate cycle to be so closely related.
"I think this is what the government does not want to see, the central government hopes that the future development of real estate is very stable, may be the same as the GDP growth rate, or relatively stable, so it is not very likely to press real estate to what level, I think it is to seek a stability."
In March this year, Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, also directly proposed that more than 100 of the more than 130 financial crises in the world since the last century have been related to real estate. Before the 2008 subprime mortgage crisis, U.S. real estate mortgages accounted for more than 32 percent of that year's GDP. At present, China's real estate-related loans account for 39% of banking loans, and a large number of bonds, equity, trusts and other funds have entered the real estate industry.
It can be said that real estate is the biggest "gray rhinoceros" in terms of financial risks in mainland China at this stage.
At present, the situation facing the real estate market, if it is not handled carefully, may affect the upstream and downstream industrial chains and even social and people's livelihood. In the past, when enterprises that were too big to fall in the market mouth faced problems in their own operations, Wang Rui believed that there were actually many opportunities for these enterprises to fall.
"Real estate is so big that it can't fall, is this situation really impossible to fall?" Will the state bail out? In fact, we have also looked at the past, on such a process of rescue, many enterprises are either financial institutions or have state-owned assets background, basically this category, will be rescued. That is to say, the government will inject capital, or the central bank and the ministry of finance will play a very active role in it, but if it is the private sector, and it is not a financial institution, and it is not a financial industry, I think the chance of a bailout is very small. ”
Yi Gang, governor of the central bank, also mentioned that the People's Bank of China has always adhered to creating a fair market environment and will urge relevant enterprises and their shareholders to properly handle their own debts in accordance with the requirements of laws and market rules, and fairly protect the interests of all kinds of creditors according to law.
As big as Evergrande, because of its own problems, it cannot resist the giant wheel of the times and needs to be adjusted.
Wang Rui added that cases like HNA's bankruptcy and restructuring may be similar to private real estate companies like Evergrande. Other real estate companies are likely to be integrated after this wave of industry consolidation.
"At present, the downward pressure on real estate is actually relatively large, if it is allowed to continue in this way, the spillover effect on the entire macro economy cannot be ignored, so it is necessary to have some macro policy adjustments to reduce the current downward pressure on the real estate market." It is believed that housing enterprises will enter the era of new models in 2022, and they may have to rethink what kind of status real estate is in the future, and how housing enterprises can cater to the national development strategy. ”
Traditional real estate enterprises are facing the transformation of the general environment, and transformation seems to be one of the ways out. Wang Rui said frankly that although it is difficult to determine the future direction of the industry, the current green transformation has become a trend.
The bond market also sees some green transformation of housing enterprises, and at the same time, it is linked to another general direction of the country, that is, sustainable development and double carbon, etc., and there are also certain selling points in the capital market.
The following is the transcript of an interview with Anzzur Senior Economist Wang Rui by Viewpoint New Media:
Viewpoint New Media: Can you summarize the Chinese economy in 2021, and what are your views on the Chinese economy in 2022?
Wang Rui: In the macro economy of 2021, I think the main downside risks are concentrated in the second half of the year, and now the market may be relatively clear, there are three main downside risks that are particularly obvious.
The first is the tightening of Internet regulation, and the second is related to energy, because China has promised to be carbon neutral by 2060, and the "double carbon" action has a great impact on the use of energy, such as power supply.
The third is real estate, real estate tightening began in August 2020, three red lines were introduced, and in January 2021, there was a bank credit management, but the role showed was from Evergrande in the second half of 2021.
At present, the three main downside risks of China's economy are caused by policies, or caused by policy changes, so from the second half of the year, especially to the fourth quarter, the economic downturn rate is relatively fast, and we feel that the GDP growth rate in the fourth quarter may be below 4%.
This morning we saw that the main economic data for November came out, investment is actually not particularly optimistic, consumption is relatively weak, industrial production is still benefiting from exports, but how about domestic demand, I think there is still a lot of uncertainty.
Until the first half of 2022, the downward pressure on the economy was very large. So as I said just now, last week's CEC, including after the Politburo meeting, showed signs of some relaxation in the direction of policy.
For example, real estate, recently we have seen credit-related adjustments, whether it is for corporate credit or for lending policies. From the perspective of energy emission reduction, everything cannot be achieved overnight, and the rhythm must be controlled.
For now, these policies should be of some help in the short term, stabilizing confidence and morale. However, from a medium- and long-term perspective, China's structural reform will not change in the general direction, and now it is only fine-tuning, which does not mean that the policy direction in the medium and long term is changing.
So our forecast is relatively conservative, with overall GDP in 2022 at 4.6%, which should be a little lower than the market's average of about 5%.
The first is the downside risk, not that today's policy changes tomorrow's economy will immediately stabilize, which requires a certain period of adjustment.
In addition, in terms of policy, it is only a short-term adjustment, not a direction shift, in order to curb the economic downturn too fast, but not to promote growth, which I think should be clear.
In this case, our forecast for the overall growth of the economy in 2022 is still relatively conservative.
Of course, on the other hand, it depends on the extent to which the policy is exerted, such as the issuance of local special bonds or how the infrastructure construction will be driven, including real estate, although the financing situation has improved now, but it should only be marginal, and whether real estate companies will be willing to continue to increase investment, it is still uncertain.
Therefore, our view of GDP in 2022 should still be pessimistic in the market.
Viewpoint New Media: What do you think of the future development of some real estate enterprises that are too big to fall? And what do you think of the differentiation of the housing enterprise camp?
Wang Rui: We have also written some articles before, because real estate is so big that it cannot fall, so is it really impossible to fall? Will the state bail out? Including enterprises like Evergrande.
Let's look at the process of rescue in the past, in fact, many enterprises are either financial institutions or have state-owned enterprise backgrounds, basically this type of rescue will be carried out, that is to say, the government will inject capital, or the central bank and the Ministry of Finance will play a very positive role in it.
But if it's this kind of private sector, and it's not the financial sector, I think the chances of a bailout are slim. For example, HNA and HNA's bankruptcy restructuring may give a sample to a private real estate enterprise like Evergrande.
Other real estate companies, if after this wave of industry consolidation, it is also possible to be integrated.
In an online meeting between the central bank and the Hong Kong Monetary Authority, Governor Yi Gang said very clearly at the time that he hoped to use a market-oriented approach to solve the problems facing the real estate market, especially the problem of related debt. In this case, I think it is still quite clear, and it tends to let the market decide.
Of course, at present, whether from the demand side or from the supply side, the downward pressure on real estate is still relatively large, if it is allowed to develop in this way, in fact, the effect of the entire macroeconomic spillover cannot be ignored.
Therefore, macro policy adjustments are still needed to alleviate the current downward pressure on the real estate market, and I think this wave of real estate policy adjustments also has such considerations.
Opinion New Media: What kind of impact do you think the volatility of Chinese dollar bonds will have on the market?
Wang Rui: It will definitely have an impact on the credit market for Chinese dollar bonds, and from last year's events to now, the market still has certain concerns about Chinese dollar bonds.
I have learned some of the ideas of foreign investors, now everyone is still worried about real estate, there are more negative voices for Chinese dollar bonds, but in fact, there are some high-quality investment-grade enterprises, investors will still choose, of course, may be some state-owned enterprises or central enterprises.
For example, some high-quality or "country" background, there will be a certain choice in the market, but these high-yield may not be necessary, I think it will take a while to recover.
Now the policy signal is still relatively strong, want to reshape the entire real estate market, in fact, this signal was also sent in 2016 and 2017, but at that time the market did not pay attention to, or combined with China's medium- and long-term development goals to understand.
For example, the common prosperity and triple distribution proposed in 2021 are put together with the goals of China's vision for 2035. Housing, the residents have their own houses, in fact, with the common prosperity is consistent, so whether from within China or from the perspective of foreign investment, may also slowly realize that the overall direction has changed, any policy adjustment may be short-term, so that the fluctuations will not be so large, but does not mean the policy turn.
The market believes that China's annual new housing demand will fall to 1.2 billion to 1.3 billion square meters, how do you judge?
Wang Rui: From the perspective of demand, there may still be a certain demand that has not been released. In the past few years, China's regulation of the real estate market is either to restrict purchases or control demand, and the tendency to suppress demand-side policies is still very obvious, so there is room for improvement in the future.
Other indicators, such as the area under construction or the area sold every year, if you look at the area for sale, in fact, it has exceeded the demand, if you look at the area built, it is actually just right.
Of course, the difference between cities in China has begun to widen, and the demand in first-tier cities or urban agglomerations is relatively strong, but the third- and fourth-tier cities or cities with net population outflow may not be dominant.
Viewpoint New Media: There is market analysis that January 2022 or the worst time for real estate companies, do you agree?
Wang Rui: Yes, for example, US dollar debt, January 2022 is a peak period, about 6 billion, a total of about 30 billion in the first half of the year, March is also a peak, in fact, the second quarter is also a peak.
The most recent stage is of course January, and now foreign capital is basically about to take a holiday, and China's February New Year, before the end of the year to settle project funds, project funds, settlement wages, cash pressure is very large, so January 2022 is indeed a very important node.
Moreover, it cannot be ruled out that if this wave of stable growth wave policies has an effect, assuming that the economy stabilizes in the second half of 2022, I think it is very likely that policy regulation is back.
In the second half of 2020, the economy has just come out of the epidemic, and real estate has immediately begun to tighten, and I don't think it can be ruled out that this situation will happen.
Opinion New Media: What are your predictions about the manufacturing sector or exports?
Wang Rui: The momentum of manufacturing or exports is very obvious, we also said in early 2012, in the middle of the year, many people thought that exports might not be so strong at the end of the year, but at that time we felt that we could still maintain double-digit growth.
Mainly the semiconductor industry, because the semiconductor industry has always been relatively strong, including after the epidemic, many manufacturers have no way to transfer, and they have found that production in these places in Southeast Asia is not necessarily very stable, and may rethink the layout of production lines, so China is very much benefiting from the impact of the epidemic.
But this momentum may slow down in 2022, of course, not to say that it is completely worse, there may still be a single-digit increase, but it will not be as strong as in 2021.
In addition, the export of electronic semiconductors may not be as strong as in 2021, because the forecast of the Global Semiconductor Industry Association for 2022 is about 8%, and the forecast for 2021 is more than 20%, so there is also a certain change in the perception of the semiconductor industry.
This may have a certain impact on China's exports, of course, not to say that exports will be worse, or very strong, the contribution rate is still positive, not too far from 2021, but relatively speaking, the momentum may not be so strong.
In the past, China's economic growth mainly relied on real estate development, and now the government intends to transform advanced manufacturing and strategic emerging industries, do you think China can completely successfully transform in the future, and there are other industries that can completely replace the status of real estate?
Wang Rui: I think it is very difficult, real estate is really important to China, on the one hand, it is a very important means of credit expansion, because whether it is household leverage or corporate leverage, real estate as collateral or as a support for bank credit expansion is a very important part.
From the perspective of residents, the accumulation of household assets is also largely dependent on the growth of real estate assets. Why do Chinese tourists buy so many things overseas? Looking at wage growth alone doesn't explain why they can buy so much overseas, but the appreciation of asset prices largely explains that.
From the perspective of households, a large part of the appreciation of assets is certainly real estate, of course, the stock market also contributes, but most of the assets in Chinese households are still real estate.
From the perspective of the contribution rate of real estate enterprises to the entire economy, there are many different estimates, such as GDP accounting for more than 20%, which industry can do so much? I find it difficult.
Of course, new energy and high-tech products are definitely in development and a trend in the future, but as we just said, it is difficult to find a substitute for real estate, whether it is credit growth or the role of the production chain and value chain.
Moreover, China's urbanization process is not yet complete, and everyone still has a certain demand for housing.
Opinion New Media: How much do you think real estate accounts for economic growth in the future is the ideal level?
Wang Rui: There is a relatively certain view, the reason for policy regulation, may not want the credit cycle and the real estate cycle to be so closely related, every credit cycle and every downward or upward risk, are closely related to real estate.
I think this is something that the government does not want to see, and may want to turn real estate into infrastructure construction, become very stable, and be on par with GDP growth, without large fluctuations.
The state's current policy on real estate is also called stabilizing expectations, stabilizing house prices, and stabilizing land prices, not reducing house prices and land prices, so stability is still quite clear.
If the real estate downturn is too fast, a very extreme example is Japan, which spreads from real estate deflation to the entire macroeconomic deflation, which is actually a very headache problem.
Viewpoint New Media: Do you think that the inner room will develop in the future after experiencing this round of adjustment ups and downs?
Wang Rui: It's hard to say, but there is a trend that is also quite interesting, that is, green transformation.
On the bond market, we can also see some green transformation housing enterprises, which have become related to another general direction of the country, that is, sustainable development and double carbon. In addition to property, I think green is also a way of thinking, and there are also certain selling points in the capital market.
In addition to fiscal policy and monetary policy, China's economy is largely affected by changes in industrial policy or national supervision, and enterprises must be consistent with the general direction of the country, and every enterprise cannot avoid it. If you can do a green sustainable transformation, I think it is not a good idea.
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