The fastest rate of decline in new housing prices since June 2015 was seen in May. Prices have fallen for eleven months despite the measures taken by the Beijing authorities. The decline is spread throughout the area, with prices dropping in 68 of the 70 urban areas analysed.
This situation is not really surprising. The political leadership wants to minimize the number of construction sector bankruptcies as much as possible. It therefore supports the promoters and makes every effort to complete the projects. This keeps millions of workers employed, but also maintains an oversupply of real estate, resulting in lower prices. This strategy allows the Beijing authorities to avoid a major financial crisis while still allowing time to completely turn the page on past excesses.
On the other hand, industrial production disappointed in May, with an annual increase below expectations, to 5.6% in May against 6.7% in April. China's industry relies on exports to sell its products. The massive influx of Chinese products is being thwarted by China's trading partners, who are increasingly instituting customs barriers.
Boosting domestic demand in China is crucial for meeting the official target of GDP growth close to 5% in 2024. With this in mind, even if this figure remains low and still indicates the reluctance of Chinese households, the annual increase of 3.7% in retail sales in May against only 2.3% in April is good news.
In the coming months, the Chinese economy will still face turbulence, but it will also show GDP growth that is envied by all developed countries.
Given the country's potential and its attractive valuation, the Chinese market has a place in a diversified portfolio.