Letter From Shanghai No 1002 - So Far, No Joy

Clearly, the positive China news flow is having an effect on analyst expectations. Beijing released the “20 measures” on Friday to reduce the Covid intervention overburden and the “16 measures” to support the property sector in which the state banks are encouraged to open up lending to cash-poor property developers. Depending on your perspective, these are long-awaited policy pivots or modest steps that do not yet grasp the extent of the problem. I think we can agree the announcements are a start, but perhaps the over-optimists have not read the details. And we can also agree that both policy developments will need to be supplemented and strengthened in the coming months. However, changes are taking place: this morning, Country Garden, one of the largest property developers in China and one of the most indebted, has announced that it will place 1.46 billion new shares at HKD 2.68 per share, raising HKD 3.92 billion (USD500m), no doubt providing a lifeline to the business.

At 10 am this morning, we had Retail Sales YoY Oct at -0.5% (previous 2.5%, expected 1%) and Industrial Production YoY Oct at 5% (previous 6.3%, expected 5.2%). Looking at the developments of the last four or five days, it is probably these numbers that have driven the newfound pragmatism in policy. The retail sales number is consistent with the level of New Household Savings which has risen RMB 13.2tn (USD1.8tn) for the first 9 months of this year. The retail sales number is particularly poor for those looking for a pickup in consumer confidence that will drive more property sales that, in turn, will mop up the residential inventory overhang. The recent double-eleven singles day, the annual online shopping discount bonanza, passed by without notice, and none of the online platforms announced subsequent sales numbers, merely saying they were in line with recent years. Certainly, the delivery guys to our compound were untroubled, and the mountains of cardboard boxes of previous years were conspicuously absent. It would be difficult to imagine how these Chinese savers will buy “risky” property in the near term without serious discounts or a significant change in the economic climate.

The National Health Commission reports, as of midnight last night, 17,772 new Covid cases were added in the previous 24 hours. On a personal note, I have seen that at least one hospital in Shanghai is now offering the CanSinoBIO vaccination in addition to the usual Sinopharm and SinoVac. Taken via inhalation rather than injection, the CanSinoBIO is a Chinese-produced mRNA vaccine that is, I believe, the first mRNA vaccination to be offered in China. The gas is in a sealed cup about the size of a tall Starbucks coffee; open the integral mouthpiece and inhale the contents, and the vaccination is delivered straight to your throat, lungs and nose. I have applied online for an appointment but so far, no joy.

Have a good day,

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John