Breakfast briefing: Huge Chinese property sector support may not be enough

Economy / news

China leaves key rates unchanged but markets not convinced on property sector actions; some commodities jump; Taiwan export orders rise; UST 10yr 4.44%; gold up again; oil slips; NZ$1 = 61.1 USc; TWI-5 = 70.2

21st May 24, 7:22am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand, with news China seems to be struggling to find its way through the wreckage of its property crisis.

The Chinese central bank left both its 1- and 5-year rates unchanged in their monthly review today, still at 3.45% and 3.95% respectively. The one year benchmark has been unchanged for nine consecutive months now, the five year benchmark for three. These 'holds' come amid a flurry of other loosening activity last week, targeted at reviving their property markets and saving the remaining large property developers.

Analysts are forming the view that the actions China has taken to reinvigorate its property sector won't be enough to achieve that. Bets that much more stimulus will be required are juicing up some commodity markets. Copper, for example, has now risen to US$11,250/tonne, up +7.5% in a week, up double that in a month. Zinc has taken off too, up +10% in a month.

Meanwhile they are chalking up some global success in other areas. The number of new shipbuilding orders in China rose almost +60% in Q1-2024 from the same period a year ago. This accounted for about 70% of global orders for ships. Almost 40% of those orders were for bulk cargo ships, 12% for container ships. But there was a notable surge in orders for oil tankers, accounting for 35% on Q1 orders. Normally they account for less than 10%.

We should get the Chinese foreign direct investment data for April later today and markets are braced for another quite weak result as the two superpower blocks disentangle.

And we should note that the southern province of the Guangxi (at the border with Vietnam) is suffering unusually heavy rainfall currently with widespread flooding. Both hourly and daily rainfall records have been broken.

Meanwhile Taiwanese export orders came in in April at the same level as March, a very good result because that is almost +11% higher than April 2023 and well above the expected +4.5% gain.

And we should also perhaps note that the New Zealand carbon price is falling away quite quickly now, with the NZU down to just $46/tonne. (You will recall it at over $80/tonne more than a year ago.) That is now miles below the NZ$132/tonne EU carbon price, which is languishing but not really falling.

The UST 10yr yield is now at 4.44% and up +2 bps from this time yesterday. The key 2-10 yield curve inversion is less at -39 bps. Their 1-5 curve is also less at -65 bps. And their 3 mth-10yr curve inversion is now less at -94 bps. The Australian 10 year bond yield is now at 4.30% and up +1 bp. The China 10 year bond rate is unchanged at 2.32%. The NZ Government 10 year bond rate is now at 4.68% and up +2 bps from yesterday.

Wall Street has started its week with the S&P500 little-changed. European markets were up about +0.4% overnight (except London) which was also little-changed). Yesterday Tokyo ended its Monday session up +0.7%. Hong Kong rose +0.4% and Shanghai was up +0.5% in Monday trade. Singapore was unchanged on the day. The ASX200 rose +0.6% yesterday and the NZX50 was up +0.3%.

The price of gold will start today up +US$19 at US$2434/oz.

Oil prices are down -50 USc at US$79/bbl in the US while the international Brent price is still just on US$83.50/bbl.

The Kiwi dollar starts today down -20 bps from yesterday at just over 61.1 USc. Against the Aussie we are still up at 91.6 AUc. Against the euro we are softish at 56.3 euro cents. That all means our TWI-5 starts today just on 70.2, and down -20 bps from yesterday.

The bitcoin price starts today at US$68,332 and up +2.4% from this time yesterday. Volatility over the past 24 hours has been moderate however at +/- 2.1%.

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53 Comments

by agnostium | 21st May 24, 7:46am 1716234419

The one thing we can grateful to Winston for. Have a read of this and you realise there are people here that are willing to sell our country out from under us to make themselves rich come hell or high water.

https://www.stuff.co.nz/home-property/350282054/research-affirms-new-ze…

by Hamish | 21st May 24, 8:56am 1716238567

Well on one hand you have this, then on the other hand you have Shane Jones.

by ACB | 21st May 24, 9:15am 1716239747

Singapore is unrestricted and yet is a known haven for Chinese money.

by Pa1nter | 21st May 24, 9:21am 1716240096

This is an economic model being followed by governments basically everywhere.

Anywhere half nice, is getting housing bought up by wealthy foreigners.

Given governments' struggle being entrepreneurial enough to find other quick easy ways to juice an economy, expect this to be an ongoing thing till the world goes pop.

Good news for anyone who's parents own property.

by JimboJones | 21st May 24, 9:41am 1716241263

What is wrong with wealthy foreigners?

by Pa1nter | 21st May 24, 9:56am 1716242209

Aside from them driving up real estate prices, nothing. They're usually spendy types we don't have. We only have a limited pool of super wealthy.

by redcows1 | 21st May 24, 10:20am 1716243641

Nothing. But you'd think we'd learn that flogging off resources,/assets for a trickle down effect just doesn't work. Learning is not really a strong point in Aotearoa though is it.

by Pa1nter | 21st May 24, 10:24am 1716243861

It works to some degree. Some foreign investors in NZ have access to a greater capital pool than in NZ, they are able to spend more on plant and equipment, and technology, than their NZ peers.

The fact we can't fund this internally has many factors. We can tip scales, but it's also hard to compete with much larger, established companies from offshore with much deeper pockets.

by Nzdan | 21st May 24, 10:39am 1716244793

And what do they want in return for providing that capital pool?

by Pa1nter | 21st May 24, 10:45am 1716245116

They generally want to own the assets they're investing in.

by sardines | 21st May 24, 10:26am 1716244019

Wealthy foreigners that are only here two weeks a year and leave their beachside property empty for the other 50 weeks, don't contribute as much to our economy as you'd think... Other than more housing issues

by Murray Falconer | 21st May 24, 10:38am 1716244702

And it hurts housing affordability, those who sell higher than would have been spend more on their next house and so no etc. For every house purchased, it is still one less available for a local.

If we want NZ to start benefitting from the existing foreign owners and the potential new ones, then the way to do this is via a land value tax which is used to reduce other taxes such as PAYE. Raising the threshold, as mentioned in the article, is not the way to do it.

by agnostium | 21st May 24, 10:40am 1716244839

You can't see an issue with wealthy foreigners buying up houses in New Zealand for second homes and bolt holes in case of collapse in their own country?

by Pa1nter | 21st May 24, 10:46am 1716245167

If what they fear actually comes true, you may find them moving their shops here also.

by Audaxes | 21st May 24, 9:52am 1716241954

Indeed. - it's our (banks) last resort strategy.

Finance capitalism basically sought to break away all of the public infrastructure. Most financial fortunes and financial fortunes in history were made just in the way that Zola had described, by prying thefts from the public domain.

But the financial capitalism doesn’t say… You don’t have to steal it; you actually make it your policy, giving away the financial domain in the way that President Yeltsin gave away all of Russia’s natural resources, public utilities, electric companies, anything that yields an economic rent that can be just easy income without any investment. And you financialize it.

You’ve had, for the last – really since the 1980s, but even since World War 1 – this movement to prevent industrial economies from being low cost. But the objective of finance capitalism, contrary to what’s taught in the textbooks, is to make economies high cost, to raise the cost every year.

That actually is the explicit policy of the Federal Reserve in the United States. Turn over the central planning to the banking system to essentially inflate the price of housing, with government guaranteed mortgages, up to the point where buying a home is federally guaranteed up to absorbing 43% of the borrower’s income.

Well, you take that 43%, you take the wage withholding for social security and healthcare, you take the taxes; the domestic market shrinks and shrinks. And the finance capital strategy is exactly what it is in the United States today, in Europe. Shift all of the money away from the profits of industrial capital that are reinvested in making new means of production. To expand capital into a shrinking economy where the financial sector intrudes more and more into the economy of production and consumption and shrinks the economy. Link Hudson

by Dick Mammoth | 21st May 24, 1:23pm 1716254581

Winnie has saved us from aussies fate for a little while anyway.

https://www.macrobusiness.com.au/2024/05/foreign-raiders-buy-up-austral…;

by kiwikidsnz | 21st May 24, 8:39am 1716237564

The University degree business model has a few integrity problems. It would be interesting to know if / how NZ is different.

"Almost one out of every five computer science papers published in the past four years may not have been written by humans."

https://www.abc.net.au/news/2024-05-21/wiley-hindawi-articles-scandal-broader-crisis-trust-universities/103868662

by FCM | 21st May 24, 8:17am 1716236268

That's right with AI, a portion of the human population is heading for "Idiocracy". I think we will end up going full circle, and face to face contact at banks and exams, just to prove a actual human is involved.

by the Joneses | 21st May 24, 9:15am 1716239745

The article points to the lack of funding for the Universities as being the root cause of the problem. Technology seems to be just the enabler.

"For decades now, teaching standards and academic integrity have been under siege at universities which, bereft of public funding, have turned to the very lucrative business of selling degrees to international students."

When we make everything a money making business, we get hollowed out institutions.

by agnostium | 21st May 24, 9:46am 1716241609

Agree. The idea that universities are there to train people to earn money is part of the issue.

There is a huge benefit in society paying for our best and brightest to pursue knowledge for the sake of knowledge if that's what floats their boat. Sometimes they will discover something that can be monetized or gives an obvious benefit, other times they will not. Human scientific discovery is littered with huge discoveries that were uncovered through luck and alternatively huge effort put into dead ends. There is no real way of picking winners and losers as science literally uncovers the unknown.

But if we have managerial class corporate type politicians dictating what should and shouldn't be studied all we get experts at regurgitating already discovered knowledge.

by JimboJones | 21st May 24, 9:45am 1716241535

Isn't it the same as using a calculator in a maths exam? I'm sure that was considered cheating many years ago.

If you can use a tool to get the right answer then good for you. The questions will need to get harder, which means the outcome will be better.

by Murray Falconer | 21st May 24, 10:46am 1716245196

Isn't it the same as using a calculator in a maths exam?

Not sure about that, it is pretty easy to get a completely wrong answer by pressing just one wrong button on the calculator so you had to have a clue about what the expected answer was. You had to interpret the question for yourself. With AI you're basically reading the question and letting it interpret and answer it.

But I would say that as I used a calculator a lot in school...

by nktokyo | 21st May 24, 8:15am 1716236142

China: you can't spend your way out of a plummeting population, who are motivated to move themselves and/or their money offshore as fast as possible.

Japan only lasted this long because most Japanese are happy to keep themselves and their yen in Japan.

by Pa1nter | 21st May 24, 9:24am 1716240269

Many Chinese are happy not going anywhere.

But yeah, even if only a few percent are wealthy and realize where things could go there, that's a lot of moolah fleeing the country, looking for a home.

by Baywatch | 21st May 24, 9:55am 1716242117

True and looks like many are using a certain digital asset to do this (or hold as the best store of value if they manage to offload their property)

by Pa1nter | 21st May 24, 9:58am 1716242294

Maybe.

If only there was a way I could profit from capital flight.

by Baywatch | 21st May 24, 10:07am 1716242833

Or convert my debasing unit of FIAT to something harder? You mentioned something about halving gains a few weeks back - might have been a sarcastic remark?

by Pa1nter | 21st May 24, 10:12am 1716243134

Which one is it?

If you're able to amass a significant amount of surplus cash you can't put to better use and want to try and find an inflation hedge, good for you.

by Baywatch | 21st May 24, 10:24am 1716243856

Plus move across borders in seconds...priceless..(without a significant haircut from a middleman)

by Pa1nter | 21st May 24, 10:25am 1716243949

I can move money around internationally in seconds for almost nothing.

by Baywatch | 21st May 24, 10:31am 1716244296

Example? Say $1,000 kiwi pesos to Australia and I need it by midday?

Bitcoin transaction...done..cost 50 cents kiwi pesos

by Pa1nter | 21st May 24, 10:33am 1716244413

Remitly or Wise.

If it's your nest egg mechanism you shouldn't really be drawing from it unless it's time to cash out.

I'd you're converting from NZD to BTC to AUD to do a transaction, you're probably not gaining much.

by Baywatch | 21st May 24, 10:36am 1716244615

LOL - I can send $1.00 or $100,000 dollars - still in seconds...your example I would get it tomorrow (hopefully and cost $20 bucks but more so if large sum and still have a haircut on the FX fee). Plus the time to set up the transfer...

by Pa1nter | 21st May 24, 10:50am 1716245429

Some services have set fees and some have percentages. Some have fair forex rates and some are making on the spread.

I think I've spent about $12 shuffling 10 grand in odds and sods between check accounts and whatever currency I want to use in seconds using an app anyone can use.

At $12 and no learning curve spending another second on anything else isn't a good return for me.

Maybe if you're transferring hundreds of thousands around all the time and saving a few bucks spins your wheels. Not sure how many people have that requirement, or motivation.

by Baywatch | 21st May 24, 10:55am 1716245740

Yes this spins my wheels as this company be making less (and those transferring will keep more of their hard earned $$)

Western Union's fourth-quarter revenue reached $1.050 billion, a 3% year-over-year increase on a constant currency basis.

- Adjusted EPS for the quarter was $0.37, up 16% from the previous year.

- The company achieved transaction growth of over 5% for the second consecutive quarter.

- Western Union returned $650 million to shareholders in 2023 through dividends and stock buybacks.

by Pa1nter | 21st May 24, 11:00am 1716246016

I'm sure people will get grifted transferring money no matter what the mechanism.

You can also avoid Western Union by not using Bitcoin also.

I never really factor in sticking it to some other entity in my financial decisions. Detracts from overall objectivity a bit. I just usually want good service at a price I'm happy with, for minimal effort.

by Baywatch | 21st May 24, 11:06am 1716246383

Fair enough but a kiwi fruit picker from Vanuatu who gets ripped off each month would probably disagree. As for me I love disruption.. so enjoy your objectivity and privilege I guess?

by Pa1nter | 21st May 24, 11:10am 1716246610

Depends if he's contrasting it to his income in Vanuatu, or the income of his employer in NZ. Or your price to buy kiwifruit.

My priveledge? I'm not the one being miserly over my costs to transfer hundreds of thousands of dollars internationally.

I like disruption that's a better cheaper version of something. It's a guiding principle of most of my commercial endeavours.

by Baywatch | 21st May 24, 11:18am 1716247091

I repeat enjoy your privilege that you don't care about such costs...

by Pa1nter | 21st May 24, 11:23am 1716247391

Saving some number between zero and $12 (likely actually more expensive anyway), for around 2 years' use of something?

High roller right here.

by Baywatch | 21st May 24, 11:25am 1716247513

Now your playing the man...round of applause...

by Pa1nter | 21st May 24, 11:31am 1716247919

I am?

Wasn't one of us trying to cite priveledge check? And some weird comment about kiwifruit pickers? You want these people to use Bitcoin to help pump it's value/use case?

Try some coherency in your view. Can be very profitable.

by Baywatch | 21st May 24, 11:38am 1716248302

Sorry - your one strange cookie?

I want the kiwifruit picker to keep more of their hard earned $$ rather than an incumbent buying back their shares after a record year?

Having to explain that to you is odd...your just clutching at straws now (and perhaps pearls)

by the Joneses | 21st May 24, 11:50am 1716249025

Funny how our altruism coincides exactly with how we intend to make money sometimes.

by Frank. | 21st May 24, 11:17am 1716247075

Chill out man. Another way to look at it is to admire Western Union for being so successful.

by Baywatch | 21st May 24, 11:20am 1716247206

Hard to be chill looking at the BTC price today...

by Pa1nter | 21st May 24, 11:24am 1716247473

Which shouldn't really matter if Bitcoin is just a service to move money around.

Actually, depending on which timeframe you're needing that function, it could be dire.

by Baywatch | 21st May 24, 11:27am 1716247662

Chill out man

by the Joneses | 21st May 24, 11:44am 1716248692

If you want some big numbers to compare, I just calculated that the current yearly sunk power cost of mining Bitcoin in is about 25 Billion NZD. That is not including hardware cost of the mining rigs.

Those holding these tokens believe they are all going to get rich off it. Who is paying those power bills? Where exactly does the 'profit' come from in this system?

Makes the Western Union profit seem like a drop in the bucket.

by Audaxes | 21st May 24, 9:27am 1716240450

Mrs. Watanabe: How Ordinary Japanese Housewives Shook the World of Finance

by Murray Falconer | 21st May 24, 11:00am 1716246038

China: you can't spend your way out of a plummeting population

Is that what they're trying to do? I thought it was all about holding property prices 'high'. In which case Japan isn't a good example as their houses have been allowed to be more affordable.

The eight level apartment building we built in Guangzhou was struggling to yield 1%, so basically more overpriced than Auckland which takes some doing. So plenty of supply meant affordable rents, but sale prices being sky high for no apparent reason (especially considering their population age profile and no mass immigration to save the day).

by agnostium | 21st May 24, 1:16pm 1716254188

I've been waiting for one of the posters who was incensed about political "corruption" and "incompetence" under the previous administration to pipe up and condemn this but it seems that some people only get worked up about the other team's party.

I am actually happy for this to be treated as a genuine mistake, so long as it is made clear who the donations came from. He is a first time MP and I imagine the rules can be confusing.

https://www.stuff.co.nz/politics/350284505/national-mp-stood-down-selec…

by pacifica | 21st May 24, 7:27pm 1716276444

With the same token he has been stripped of his roles, condemned openly multiple times by his own party without excuses, apologized, had a significant doc in pay, forced to the background and likely will be unable to regain those roles or continue. It is as close a punishment as they could get.

Meanwhile the other parties are still trying to keep actually physically abusive and criminally dangerous MPs in their roles, saying oh but the public opinion of them is punishment enough... yeah no consequences for much more harmful criminal behavior in their ranks. It is hard not to see where we actually need more ethics and standards improved. I would much rather the physical crimes and exploitation ones result in not only more criminal cases but to be considerably more punished then stripping of all roles and a doc in pay. For what they have done unemployment is the correct option. But nah, no consequences so next time MPs assault or steal from the public their wages they can walk freely knowing the justice system can never hold them to account and that sends a big message to the public.

It does not matter which party. Punishment for leaders departure from ethics so severely must be punished severely as the message & influence to the public is that much greater. What are the usual punishments for assault, and criminal behaviour and why are we not seeing that. Why has the public lost faith in calling police for crimes or reaching out to justice systems. Why is the ERA & justice systems likely to do more harm & damage to the victims then any consequences for the actions of the law breakers. There is a reason why those who are most likely to experience crime and be victimized are also the most disempowered and in poverty while these unethical leaders walk free. How can we trust politicians who benefit from that system and encourage it.