China Resources Land (HKG: 1109) (OTCPK: CRBJF) shares are up 10% this morning as the Chinese government decides to support the property market some more. This may or may not be a good idea from the macroeconomic point of view. There is, at some point at least, truth to that Hayekian and liquidationist idea. That sometimes markets have simply got too stuffed with nonsense and the only useful solution is to allow them to collapse, be purged, and start again. On the other hand we’ve all been rather fearful that the CCP would allow that to happen to the Chinese property market and we’re gaining here indications that they want to avoid that. See above about how policy doesn’t always achieve its goals but they are trying.
As to what’s done at China Resources Land: “China Resources Land Limited, an investment holding company, invests in, develops, manages, and sells properties in the People’s Republic of China. The company operates through four segments: Development Properties for Sale; Property Investments and Management; Hotel Operations; and Construction, Decoration Services and Others. It engages in development and sale of residential properties, offices, and commercial premises” OK, so right at the heart of that Mainland property market then.
The general bounce in all Mainland related property shares comes from: “Chinese stocks jumped after the nation rolled out further property support measures, the latest in an intensifying campaign to rescue the beleaguered sector that’s been dragging down the economy. “ More specifically: “The latest changes included lowering the minimum down payment and easing mortgage restrictions for some homebuyers at mega-cities including Beijing. Home sales soared in the biggest cities over the weekend following the relaxation of mortgage rules, according to several local media reports Monday.” Now, whether that’s actually going to solve problems, well. That rather depends upon what our diagnosis of the problem actually is.
China Resources Land share price from Google Finance
As we’ve said about Country Garden: “Country Garden (HKG: 2007) (OTCPK: CTRYF) shares are up near 15% in Hong Kong today. We have no specific news - perhaps the payment on a ringgit bond but not much more than that - so must ascribe this to a turn in sentiment over the weekend. For the general assumption in the markets is that we’re not looking at whether Country Garden is going to go bust. Rather, it’s how it’s going to go bust. Now, it is possible that it won’t at all but that isn’t, as we say, the general assumption. That debt load in a property market that is both falling in value and also slowing in transaction numbers? Well, as so many have noted, that depends upon what the government does.”
If we think that the Mainland property problem is a form of market constipation then the current changes might well help. More buyers, property comes off the developers’ books, debts get paid down and problem solved. Or, perhaps, hte problem is simply shifted onto the mortgage holders, not the developers? Or, another possibility, the country is simply so overbuilt that this just spreads the problem rather than solves it.
It’s possible to justify any of these views and more. Which is what makes the share prices of the Chinese property developers so volatile.