Country Garden Services (HKG: 6098) (OTCPK: CTRGF) shares jumped 25% today. There was a significant rise in many China related shares but Couintry Garden stood out even among the real estate ones. The Hang Seng was up 3%, but many of those China related property ones 10% and more. This, of course, followed the 17% fall in CGS yesterday. The reason here is also just as we described yesterday.
As we did say about Country Garden Services: “Well, what can be done? At this point there are really only two things that are possible. The first is that there is general support to the sector. Preferential interest rates, general economic stimulation, Keynesian demand management and all that. The problem here is that this has all been done, multiple times, in past years. It may not be that Austrian economics is wholly true all of the time but in extremis that argument that bubbles will pop and that they need to pop is indeed true. Which leads to the second possible thing. The Chinese authorities agree that the bubble has popped and so allow large numbers of people to go bust. Of course this will be a managed process. But managed in whose favour? “
Country Garden Services share price from Hong Kong Stock Exchange
Today we got our answer about what the CCP is going to do about China real estate: “Key tasks for the second half of this year are expanding domestic demand, improving confidence and preventing risks, it said. The move to shore up the property sector – which used to be a major engine for economic growth but has lately been a source of financial risk and social instability – is part of the Chinese leadership's broader efforts to invigorate confidence, as getting people to spend and invest is crucial for the economic growth.” and “Ding Shuang, chief Greater China economist at Standard Chartered Bank, said more property policies could also be introduced, moving forward. “This may lead to a smooth landing of the real estate sector, rather than a big rebound, and a smooth landing is already a good result,” Ding said.”
Now, as every free market economist knows, government says and government achieves is not quite the same thing. However, we do now see what the general thrust of CCP policy is going to be. Reducing some of the financing restrictions upon property companies, increasing domestic demand and so on. They're to try to reflate that is. Well, it might work at that. But the bounce in property stocks like Country Garden is based upon this policy announcement. Given the importance of real estate in the Chinese economy this has also led near all China related stocks higher of course.
