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Chinese housing slump, FDI slowdown continue in October

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Beijing is trusting to free trade deals to offset the impact of clampdowns on corruption by businesses and officials. Photograph by Johannes Eisele — AFP/Getty Images

It’s a good job that Chinese consumers are holding their end up, because two of the engines that have driven the economy for the last 10 years just aren’t firing any more.

The National Bureau of Statistics said Tuesday that the nationwide real estate slump continued in October, as prices fell 0.8% on the month and were down 2.6% from a year earlier. Although that’s a slower decline from the 1% drop posted in September, it still leaves the sector firmly on a downward path.

Of 70 large and medium-sized cities, prices for new residential buildings fell in 69. In year-on-year terms, prices were down in 67 cities, compared to only 58 in September.

The slowdown in construction and real estate has been arguably the biggest single factor in China’s overall official growth rate slowing to an annualized 7.3% in the third quarter of this year, the lowest since 2009. Beijing has already started to drop hints it will slow further next year, with President Xi Jinping saying last week that a rate of 7% “would be a disaster.”

Another factor behind the slowdown has been a fall in foreign investment into the country, against a background of tightening antitrust regulation, a clampdown on corrupt business practises and slowing demand for luxury goods due to Xi’s anti-corruption campaign.

Other data released Tuesday by the Ministry of Commerce showed that foreign direct investment was down 1.2% year-on-year in October, albeit that was a slight improvement from a drop of 1.4% in September. Investment from the U.S. fell 16% on the year, and flows from the E.U. fell 24%, Reuters reported. Reuters said the service sector, which stands to gain more from the authorities’ new focus on developing domestic consumption, attracted the most investment, with $53.1 billion, while the manufacturing sector attracted $32.5 billion.

To help sustain growth, Beijing has made three major deals on trade liberalization in the last week–with the U.S., South Korea and, on Monday, Australia.

The Australian deal, signed on Monday, will scrap or sharply reduce tariffs on a wide range of Australian agricultural products, including wine, as well as on many natural resources and pharmaceuticals. It also gives much freer access to the service sector, including legal and financial services.

Analysts at ANZ said the deal will bring major benefits to one of the world’s biggest and fastest-growing trade relationships, with 95% of goods between traded tariff-free when the deal is fully implemented.

The burgeoning trade between China and Australia. Source: ANZ