Chinese house prices stabilise, western provinces capture our attention

<p>Despite all the doomsday predictions that China’s housing bubble would burst in 2012, the opposite has turned true. In hindsight, 2012 has been a very […]</p>

Despite all the doomsday predictions that China’s housing bubble would burst in 2012, the opposite has turned true. In hindsight, 2012 has been a very important year of consolidating recent gains. The financial system has been able to withstand bad loans and the need for emergency monetary policy did not materialise. In fact, October’s official data showed China’s new home prices actually firmed by more than the previous month. Prices gained in around half of the 70 cities tracked by the government survey. This compares with rises in only 31 cities in September. Only 17 cities reported losses and even these were modest.

The composition of the data for us is even more important. The north western city of Urumqi led the national gauge with a 0.5% gain in prices from the prior month. Urumqi is the largest city in China’s western interior and its economy forms an important part of Xinjiang’s industrial capacity. The gains in Urumqi stand out because the city has outperformed the usually better performing coastal and financial hubs. Shanghai prices were stable for the month while Beijing only reported gains of around 0.2%. Urumqi is also very remote, in fact among one of the furthest cities anywhere in the world from sea.

In September we discussed the impact of China’s central policy towards second and third tier cities, developing inland hubs. The extensive discussion can he found here. While Hunan and other provinces have been our main focus, the housing price performance in Urumqi shows the potential for even more remote parts of China to start picking up the slack from the more prominent coastal cities. Urumqi did experience ethnic unrest in 2009 and the central government was quick to throw its support towards large amounts of development support in the region. Investment is beginning to pay off.

China will continue to make the social impact of its policies prominent in planning its economy next year. This is always a primary motivation, as illustrated by Urumqi. The Xinjiang region received seven new expressways and 11 railways with total investment in the order of RMB145bn as part of the 2009 fiscal injection package. Gains in Urumqi’s property prices might be distorted by one off impacts, but we’ll be watching very closely to see how the numbers print next month. Many traders have overlooked the huge potential in second and third tier city development, perhaps the housing numbers are starting to signal an important investment trend for China in 2013.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.