China Home Prices Slow, What Happens to Credit?

After a blitz of buying and credit restrictions, the governments at all levels achieved their goal of reversing real estate prices.

Home prices increased 0.25 percent nationally in December. The Top 5, the first-tier plus Xiamen, recorded an average price gain of 0.0 percent. Guangzhou was the only gainer, with a rise of 0.7 percent. The hot second-tier cities I have tracked in prior months (Haikou, Wuhan, Fuzhou, Hefei, Hangzhou, Nanjing, Tianjin) reported a net decline. Third-tier cities drove the gains, although the top two gainers are second-tier cities: Sanya (+1.2 percent) and Chongqing (+1.1 percent). Now we know why Chongqing launched its real estate regulation blitz: Chongqing Home Sales Collapse Amid Restriction Blitz.

Existing home prices gained 0.30 percent nationally. They were up slightly in the first-tier, and up big in some second-tier cities such as 1.6 percent in Nanjing.

With credit slowing and real estate growth slowing, the ball is now in the economy's court. Companies will have to step up their lending, or the central government will have to force feed credit through the SOEs once again if the government wants stability. Credit is the lifeblood of the economy and Chinese bankers spent much of the past year trying to make as many "safe" loans as possible, mainly mortgages and government lending, to the point where residential borrowing was more than 100 percent of new credit at banks in July: Depression: Residential Mortgages Account for 102pc of Lending Growth, Rate Cut Coming
I recently had a chat with the president of a grassroots bank, they saw the collapse of a large number of small and medium enterprises, manufacturing enterprises reluctant to borrow, demand is very weak, very worried about the outbreak of bad loans, now the only source of relief is government projects, the platform loans, he said that because in his 30 years of lending experience, the government loans never go bad, at worst they are extended, so we are all seeking to lend to government projects, and this is the reason the lending platforms have too much money, also a reason for the jump in M1.
For a time in 2016, mortgage lending was propping up credit growth:
Credit makes the modern economy go. Credit growth is money supply growth in modern financial systems and without it, the economy will slow. Leave aside what is the right or wrong policy (whether the growth is sustainable or not): China wants stability in its economy, therefore it must have credit growth. If the housing market slows and mortgage lending slows, a new source of credit growth must be found. In July, loans to households increased 1.5 percent. In December, they still increased 1.5 percent. If household lending slows in 2017, as one would expect given the government's success with buying and credit restrictions, where will new loan demand come from?

PBoC: 存款类金融机构人民币信贷收支表, Summary of Sources And Uses of Credit Funds of Financial Institutions(in RMB)
NBS: 2016年12月份70个大中城市住宅销售价格变动情况

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