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China Home Prices, Car Inventories Add to Signs of Slower Growth

Friday, 18 May 2012 09:53 AM

China’s home prices fell in a record number of cities last month and car dealers posted inventory levels that foreshadowed deeper price cuts, adding to signs of slowing growth in the world’s second-largest economy.

Prices of new homes fell from a year earlier in 46 of the 70 cities tracked by the National Bureau of Statistics, the agency said today. Dealerships for Honda Motor Co., Chery Automobile Co., BYD Co. and Geely Automobile Holdings Ltd. had more than 45 days of inventory at the end of last month, according to an official from the government-backed China Automobile Dealers Association.

Goldman Sachs Group Inc. today joined banks including Citigroup Inc. and UBS AG in lowering its estimate for China’s second-quarter growth after weaker-than-forecast economic data released last week. The nation’s expansion may drop to a 13-year low this year, a Bloomberg News survey this week showed, as Europe’s debt crisis crimps exports and a campaign to rein in property speculation curbs domestic demand.

“There is no doubt that the level of activity growth in April is significantly below the government’s comfort zone,” Goldman economists Song Yu and Michael Buchanan wrote in a report distributed today. “It is clear that there is a consensus within the government that policy should be loosened further.”

China cut banks’ reserve requirements by 50 basis points for the third time in six months on May 12 to spur lending. Analysts forecast a further 100 basis-point reduction over the rest of the year, according to the Bloomberg survey.

Yuan Drop

China’s benchmark Shanghai Composite Index fell 1.2 percent as of 1:17 p.m. local time. The one-year swap rate, the fixed cost to receive the seven-day repurchase rate, fell 37 basis points this week, poised for the biggest drop since November. The yuan was headed for its largest one-week drop since January.

Goldman Sachs lowered its estimate for second-quarter growth to 7.9 percent from 8.5 percent and cut its full-year forecast to 8.1 percent from 8.6 percent.

Authorities should consider cutting benchmark lending rates to alleviate funding costs and anchor inflation expectations, economists led by Fan Jianping wrote in the China Securities Journal today. The researchers, from the government’s State Information Center, estimate economic growth may drop to 7.5 percent this quarter.

The eastern city of Wenzhou led declines in new-home prices last month with a 12.3 percent drop from a year earlier, according to statistics bureau data. Prices in Beijing fell 1 percent and in Shanghai slid 1.3 percent.

Maintaining Curbs

A housing ministry official said the country will steadfastly continue curbs on the residential real-estate market and won’t flip-flop on its policies, the Shanghai Securities News reported yesterday. The comments followed a pledge by China’s State Council, or Cabinet, last month to stick with existing property controls implemented over the past two years that have included higher down-payment requirements and restrictions on the number of homes families can buy.

“The general price trend as a result of developers cutting prices and regulatory environment is continuing this month,” Chris Brooke, chief executive officer for China at CBRE Group Inc., a commercial real-estate services company, said in a Bloomberg Television interview from Beijing. “The objective is to remove the speculative element from the market.”

Car dealers have cut prices this year to spur sales after the government repealed tax incentives introduced in 2009 to counter the effects of the global financial crisis. A monthly survey of 36 major Chinese cities by the National Development and Reform Commission showed average car prices fell 1.9 percent in April from a year earlier, a fourth straight decline this year.

‘Fiercer’ Competition

“Competition will get fiercer,” said Huang Wenlong, a Hong Kong-based analyst with BOC International Holdings Ltd. “China’s auto demand will definitely slow down with the decline of the economic growth rate.”

Price cuts may deepen as inventories of unsold cars increase to levels that industry officials including Su Hui say are unsustainable.

“Unsold cars are crowding dealer lots in cities from Guangzhou in the south to Xi’an to the west,” Su, vice president of the auto market division at the automobile dealers association, said in a phone interview yesterday from Beijing. “It’s like a contagious disease that will spread.”

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