Slowdown in China’s real estate
In the previous part, we saw how the real estate climate index in China has fallen to multi-year lows. Let’s now look at building sales in China. The data are released on a monthly basis by China’s National Bureau of Statistics.
Building sales fall 7% in November
The above chart shows the year-over-year growth in building sales in China. As you can see, in November, building sales registered a decline of 7% year-over-year. Apparently, building sales in China have fallen each month of 2014. This is a clear negative for the global steel industry.
Please be aware that the slowdown in China’s real estate market is one of the biggest risks the global steel industry faces. The Chinese slowdown impacts US steel makers such as U.S. Steel Corporation (X), ArcelorMittal (MT), Nucor (NUE), and AK Steel (AKS). We’ll discuss this in detail going forward. Please note that since the SPDR S&P Metals and Mining ETF (XME) invests in steel and iron ore companies, it’s also impacted by the slowdown in China’s real estate industry.
Housing prices have come down
Housing prices are another indicator that analysts track to get the pulse of a country’s real estate industry. Housing prices in China have fallen for six consecutive months. China’s real estate index system releases the data on a monthly basis based on a survey of the top 100 Chinese cities.
China has reduced its benchmark interest rates. It’s expected to boost the real estate industry in China. However, over the past several years, the Chinese real estate industry has started to look beyond traditional banking channels due to the emergence of shadow banking.
Let’s now discuss China’s shadow banking system in detail.