YouSaid · the spoken record

Zhiwei Zhang

lines on the record: 31
first: 2023-11-28
most recent: 2023-11-28
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“To do contractionary policies on the, let's say, internet sector or healthcare sector, finance sector with all the anti-corruption or regularly tightening, that hurts household income. And that's going to hurt the demand for property. So policy coordination, if you really want to fix the property sector, you want to boost the demand, you need to fix the people's ability to buy property, which is the income and job market aspect. And then you need to fix the expectation. And I think those are the two legs that you need for the property sector to walk again.”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“From a policy implementation, that macro point of view, I think there are a few things that the government might want to focus on to fix the property sector. One is expectation. Even if people have the money and they have the need to buy apartment, if they think the price is going to go down and continue to go down, they probably don't want to buy. There's an intrinsic investment nature of a property or house. So how do you manage that expectation? And in this context, I find it funny that sometimes the government will be talking about museums say, oh, we are studying, we're researching, we're debating some easy measures. Guess what? If you keep saying that, people are not going to buy property. They're going to wait for that easing measure. And then go to buy. So managing expectation and managing how you communicate your easing measures in the market, I think that has impact on demand. And the second, I would say, don't just think about the property in isolation because if you're continued.”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“So that the demand, especially in the secondary market, can stabilize. On the developer side, in our calculation, the founding gap for these coming two years will be about the RM before trillion. I don't see any government plan to meet the support for trillion. At the moment, they're only talking about funding to ensure delivery. And that's about $315 billion RMB. And even for that $350 billion, it's only 50% utilized. So there's a lot of credit on liquidity issues still on the developer side that the government needs to figure out how to solve the problem. And back to Wickans mentioned on the stock side, if you think about the developer's current inventory, if everything is completed, then that will be about 34% of the total household existing housing stock. So that gives you idea of how”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I think on the demand side, we also want to see what we call the stage of true easing from government. For stage one, basically government is removing the current restrictions which is happening, but you can see the effectiveness is also quite limited. For stage two easing, we really want to see government try to do something that really can improve the affordability, especially for larger cities. Yes, China home ownership is high, but there's a big mismatch between supply and demand. i.e. when people move from Luider to urban area, they need to have properties in urban areas, but they probably have properties in the lower two cities. In other words, we have a lot lower oversupply issues in the lower tier cities, but we also have affordability issues in high tier cities. So in order to more effectively boost demand, we need government to overcome this affordability improvement in the larger city.”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“Is all of that credit that you borrowed over the last decade, all the excess inventory amongst the developers' balance sheet that needs to be cleared, because that's potentially a much bigger problem. There's a lot of potential Latin MPL, non-performing loans that could emerge out of that. So in order to really clean up the credit within the China property sector, at some point you need to switch from dealing with the flow credit issue to start tackling a lot of the stock credit issue.”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“I think from a credit perspective, we look at the credit problems in terms of two related but distinct problems. So one's the flow credit issue. The other one is the stock credit issue. So what do we mean by flow credit? So that would be to make sure that there's sufficient money, sufficient credit flowing to the system such that the developers can maintain the construction and make sure the housing are delivered. And if you look at the actual bank lending to property developers, it's increased over the last two to three years. However, to us, a bigger problem is the stock credit.”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“everything not even equivalent to the copper demand just in the Chinese property market. So this is going to have some impact on commodity demand as we go through this very painful and lengthy correction in the Chinese housing market.”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“Economy grew 6%, and one out of the six was a property driven. So now you have about a one-point draw in the front property sector, which means all else equal, you can only grow 4%. That's a simplistic way of saying it. But the point being, when you have this large segment of the economy contracting and it's going to take years to get back to normal, your potential girls take a big hit. So that's why we think Chinese girls and potential girls now may be settling at around a 4%. That's the second big impact from the property to the economy. And I think in terms of global implication, I like the statistic that if you think about copper demand before the downturn, Chinese copper demand just in the property sector was even more than the entire copper demand from US. The entire US demand for copper, including property manufacturing.”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“In terms of the property sector's impact on Chinese growth, we did an estimate by adding up all the different channels, right? We talk about there's a construction, there's real estate service when you buy and sell, there are generated service fees. And then there's a consumption channel. And then there's a local government finances slash infrastructure channel. So when we add those up, we saw in 2022 there is over 2 percentage points drive to GDP growth. And then 2023, another one and a half percentage point. So this is the saying that for the next few years, the property slowdown isn't going to have a sizable impact on China's GDP growth. And then second point, if you think about the potential growth, think of a potential growth as the average of five-year growth. Property used to be a driver of growth. Take 2019 as an example. 2019 Chinese...”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“We're seeing further deterioration at the moment. We see rising supply in the secondary market. Property prices are also still very weak. In the four primary market, our new home market, we continuously see in October after two months of policy easing by the government October 1st is very weak seasonal adjusted. So we haven't seen much impact from government eating this cycle, partly because government is so slowly, partly because the micro backdrop is so weak. And more important, I think household leverage, household death service burden is a lot higher than the previous two side down cycles as well.”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“They want to ring the market today. But I think the experience is for Chinese government is all about the primary market in the past cycles. The risk, I think this round is really about the secondary market that the government has a lot less control. The primary market, they can control the land price. They can even control developer selling price. But in secondary market, because this is all consumer behaviors, it's very difficult for them to control. So this is something we need to watch closely whether government can recognize the potential supply increase in the secondary market that eventually costs a lot bigger supply and demand and mismatch and then cause more property price decline, which further translates into lower property sales in the primary market and developers liquidity situation, construction negativities, value chain, everything to feedback to their whole.”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“So far, since this downturn, they launched these 60 measures in order to inject the liquidity to developer industry. And by the end of August this year, they also started to relax mortgage restrictions and also further remove the home purchase restrictions in order to boost the demand, especially in high tier cities. But if you look at the pace that they were doing this relaxation, it's a lot slower than what happened in 2014-2015 downturn. So that's different. And the reason for that is we just explain that they just don't want to stimulate too quickly and too massively that cause another travel. So if you look at the current supply capacity of the industry, obviously that's excessive against the long term demographic driven potential. So I think in order to avoid the huge collapse down the road,”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“So, in the back of the mind of the government, they want to figure out how do we transform the economy, how do we find a new engine of growth when we run out of urbanization, dividends, and property infrared no longer longer contribute significantly to growth. So that's another reason they're holding back. They don't want to go back to the old playbook. Let's do another bunch of infrastructure that stimulates the property again. So those are the two reasons in my mind why we're seeing such piecemeal or incremental or reluctant easing style that we have been seeing over the past year or two.”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“I think the reaction function is somewhat different now. We get a lot of a question from clients about why the Chinese government still hasn't pulled out their bosoka yet. But if you think about the experience and the memory of policymakers, the lesson they seem to take away from their 2008-2009 big stimulus and then the 2015 to 18, they did a major round of shiny town redevelopment and basically giving people cash so that they can buy apartment in the lower tier cities. The lesson they drew from those experiences that we did too much and we built this big leverage and look at the mess we're in today. So if that's the lesson, then the natural reaction is that let's avoid doing too much. And also on the housing front, in previous...”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“And a lot of the potential non performing loans in the system. And if they do that, I think they will avoid a similar path. Could we see a systemic or some kind of banking crisis in China? For us, the answer is no. And I think it's important to be aware that policymakers in China, the very focus on making sure systemic risks don't emerge. So this is, in our view, a key policy objective. And we think they are very vigilant. And we think a lot of this potential stresses are in the smaller banks. If you look at the rural city level banks, around a quarter of the banking system, that's where potentially a lot of the problems could come through if we start to get more defaults and so on. But we do think policymakers are very, very much on top of that. And obviously our belief is that they would deal with these in a timely manner so that you don't end up under Japan-like scenario.”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“There's certainly some parallels that one can draw in terms of how China has developed relative to the US and Japan. For example, Japan in 1990, US, UK, for example, around sort of 2007, 2008, what you saw was after the bubble burst, you had government leverage rising very sharply and you had private sector leverage going down, which makes sense because the private sector needs to delever after a bubble. The governments lever up to ensure growth is sustained. And we've seen that in China starting a few years ago. So if you match the timing of when the property downturn happens and you look at private and public sector leverage, actually China's falling a pretty similar path. And so from China, I think a large part of this is will they start to recognize and clean up a lot of the banks?”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“But we may not be seeing defaults on the household side, but can we have seen some large developers coming very close to default or technically defaulting? So what's your view do you think this could be a catalyst for a financial crisis?”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“Have a lot of leverage because the mortgage terms are very stringent. Give you an example in first tier cities. If you buy second home, third home, you have to pay, I think, 70% down payment to purchase those properties. A lot of people bought with cash. So I don't necessarily think as soon as the price started to decline, you're going to see waves of foreclosure and people are fire selling their apartments. That just doesn't happen. And the third linkage is also not really happening in China, meaning banks are tightening lending across the board, if anything in economic downturns in the Chinese system, the central bank is going to ask banks to lend more, not less. So I think that mechanism is also very different. So to your question, I think the initial stage of hurting construction, hurting the upstream or the whole supply chain related to property construction, China might be worse off, but the second stage and the third stage.”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“Worse than the US financial crisis. Why do I say that? As you mentioned, the Chinese economy property is just more prominent, was more linkages. It's even having these linkages with local government finances. So I think if you have something that's 30% economy and not just contracted and lapsed, then that's going to happen much bigger impact on your real economy. The first step, I actually think China is in worse shape than the US. But the good news is that the second step, think about the defaulting the foreclosures that people just can't keep making their mortgages. That doesn't seem to be happening in China. Again, the background matters. You think about Chinese household, they save 30% of their disposable income. There are people borrowing a lot of mortgages just because the property price is so high. They have to borrow mortgages. But vast majority of people, especially those who bought second home, third home, fourth home, they don't.”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“I think it's different. If you think about the way housing crisis played out in other economies, especially in a subprime crisis, they have several steps. And the first step, prices start to fall, and we also saw construction activity plummeted and having some impact on the real economy. In the second step, once the prices start to fall, you start to see homeowners defaulting on their mortgages or walking away and the foreclosure prices triggering financial issues for banks and financial system. And in the third step, you start to see banks had to tighten credit. And then that just generated additional tightening impulse in the economy. This negative feedback loop spiraled out of control. That's how we think about the traditional or the US subprime prices. Now you're mapping to China. I think the first step in China maybe even”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“The total amount of mortgage and property developer debt outstanding is around 8.4 trillion US dollars. So there's definitely quite a bit of work that's needed in terms of trying to contain the leverage growth and the fallout from the deleveraging efforts.”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“The real estate debt that buildup was very much a part of that. So if we look at developer debt plus mortgages, let's look at 2006 before the global financial crisis. If you add those two together, develop a mortgage debt, add it to just over 10% of China's GDP. At the peak, around late 2020, we estimate that this rose to around 55% of GDP. So that's a very large increase in property-related debt. And obviously, this is also in the context of this very large credit boom. And so the last few years, as we see policymakers looking to try and contain leverage and focus a little bit more on deleveraging. Naturally, the real estate sector has become a focus, especially given that it's a very levered part of growth. And in terms of numbers, we estimate at the end of last year,”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“We're living through the aftermath of one of the largest ever recorded credit boom. So if you look at, for example, in the decade post the global financial crisis, China's non-financial debt to GDP level rose from around 150% to 260% in about 10%.”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“I think the market probably peaked in summer 2021 for all the cities. Actually, lower tier cities started the price decline since 2019. But the larger ones peaked in summer 2021. And since then, if we look at the construction activities, new starts came down by about 50-60% from the peak. Land sales also come down more than 40% from the peak. Property price in secondary market in key cities also come down about 20% from July 2021. More important, I think that they look at the top 100 developers, which account for almost half of the market share before this downturn, almost 70% of them are private developers. And now out of these two-thirds of top 100 developers, we see majority of them, more or less, are having liquidity troubles already defaulted their either offshore bond or offshore bond.”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“Great exports was booming and the domestic activity was strong. So policymakers wanted to take that window of opportunity to really tighten the property sector, not just the property sector. Think about internet regulation and think about energy regulation. We had power outages in 2021. So in 2021, we had a lot of tiny policies. And by 2022, the zero-cooled policy that worked in 2020 and 2021 stopped working. So fast forward today, we're in this very depressed property market situation. That's a long-winded answer to your question, a short history about how we got here.”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“Enough for speculation. The undesirable side effects of having this housing boom start to show, meaning housing becomes so unaffordable, especially in the big cities. And also because prices have been increasing so rapidly, a lot of people think it's not worth investing in manufacturing or real economy if you just buy land, buy apartments. You can make money quickly and almost surely. So that's crowding out normal economic activities. So the leadership could really look at this and think we need to do something about it. Unfortunately, we had 2018-2019. That was the trade warmth and China growth was facing downward pressure. The timing you can only do so much. You cannot aggressively tighten the property sector. And then 2020, we had COVID. By the end of 2020, there was a window of opportunity in policymakers' mind. Chinese economists doing.”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“A relatively short history, just given China as a fast pace of development. I want to take you back to 1998. That's when the housing reform started in China. Most of the homes were pretty much provided by employers. So we didn't really have this commercial or what investor typically think about private housing market. So starting in 1998, when China's urbanization rate was only 33%, the rapid pace of urbanization in 2001, China entering WTO, all that makes together drove the spectacular growth in China. Incomes growing, and people want to have quality bigger, better apartments. So the property sector expanded dramatically from the 2000s all the way to, let's say, mid-2010s. By 2016, 17, that's when the leadership started to talk about housing is for living.”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“Home ownership rate is actually quite high in China. In the US, the homeownership rate should be in the 60s, but in China, it should be in the 80s. So most urban households own their own apartments. And depending on which survey you look at, the number varies, but somewhere between 60 to 70 percent of household total assets are in properties. So there's a common notion that Chinese households save a lot. They save 30% of their disposable income. And once they accumulate that savings, they almost exclusively put it in property or bank deposit. You look at other kind of assets, those are tiny share of household balance sheet.”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“When I talk to especially offshore investors, many investors have the memory of housing downturn is going to be super damaging to the economy and the financial system. Think about the global financial crisis triggered by the US private crisis and think about Ireland and Spain, housing bust. So that memory make investors very cautious on China due to the ongoing slowdown. So I think that's the third reason why it matters so much, not only for the economy, but also for asset markets.”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“Sure. Let me try to answer it from three different angles. One is that the Chinese economy is very important for global economy. China's GDP is close to 20% of the global GDP. And then as you mentioned earlier, property is a large chunk of Chinese economy. The second reason is that unlike in a lot of different economies, in China, property has linkages to many parts of the economy, including, for example, local governments sell land as part of their revenue. So you can see the linkages from property to local government's fiscal revenue and conding. And there's also these linkages with consumption through confidence, through housing wealth effect, through when you move in, you buy your furniture and home appliances. So in addition to construction, the upstream steel cement, so it's all connected with the many parts of the economy. That's the second reason why it's so important. And lastly, I think”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT
“We see a systemic or some kind of banking crisis in China for us, the answer is no. And I think it's important to be aware that policymakers in China, they're very focused on making sure systemic risks don't emerge.”
2023-11-28 · Goldman Sachs Exchanges · What China’s struggling property sector means for the global economy and markets · IDENTIFIED FROM THE TRANSCRIPT