China’s Property Stocks Decline as Wen Pledges to ‘Firmly’ Maintain Curbs

China property stocks fell for the first time in six days in Shanghai trading after Premier Wen Jiabao doused speculation the government will ease curbs on the industry.

The government will “firmly” maintain restrictions on real estate and local authorities should continue to strictly implement its policies, Wen said according to a statement following a State Council meeting. The Shanghai Composite Index’s property gauge dropped 0.1 percent at the close, after declining as much as 1.9 percent earlier.

“It demonstrates to local governments and developers the central government’s determination to tighten the property market,” said Liu Li-Gang, a Hong Kong-based economist at Australia & New Zealand Banking Group Ltd. “With inflation still at a high level, it’s unlikely the government will take a big step to loosen its policy, but only a partial easing.”

The government will “fine tune” its economic policies by “an appropriate degree and at an appropriate time,” according to the statement on Oct. 29

Wen said the government will fine-tune its economic policies as needed in a statement on Oct. 26. That sparked a rally in Chinese stocks, driving the property gauge to its biggest weekly jump in more than two years.

The government this year increased down-payment requirements and mortgage rates on some homes and imposed housing purchase restrictions in about 40 cities.

Mixed Data

The official housing data has shown mixed results. While home prices rose in fewer than half of 70 Chinese cities in a nationwide survey in September from August, only one had a decline from a year earlier. Among developers, China Vanke Co., the biggest publicly traded property company, posted a 12 percent drop in September contract sales from a year earlier, and China Overseas Land & Investment Ltd. reported an 18 percent decline. Evergrande Real Estate Group Ltd., the second biggest by sales, said September housing contracts surged 79 percent.

“Property curbs are at the critical stage now, so the policies shouldn’t and wouldn’t be relaxed, because there has been no concrete data showing home prices dropped a lot,” said Shen Jianguang a Hong Kong-based economist at Mizuho Securities Asia Ltd. “But everything else from money supply to investment has fallen a lot.”

China’s inflation rate remained above 6 percent for a fourth month in September. The government will also ensure a “reasonable” growth of money supply and support small companies to promote job creation, according to the statement.

Bigger, Faster Treadmill

China is on “a bigger and faster treadmill” than ever as property sales slow, Jim Chanos, president and founder of $6 billion hedge fund Kynikos Associates Ltd., said in a Bloomberg Television interview from Singapore on Oct. 28.

Chanos has forecast since at least February 2010 that the property market will slump, saying that China is Dubai times a thousand and on a “treadmill to hell” because of its reliance on real estate. Property transactions in the past two months in so-called tier one, two and three cities his firm tracks are down 40 percent to 60 percent year on year, said Chanos, who predicts “the property slowdown or worse has started.”

The hedge-fund manager’s views are at odds with those of Stephen Roach, non-executive chairman of Morgan Stanley Asia, who said in New York last week that the government has had some success in deflating a housing bubble and that concerns of a hard landing are “overblown.”

‘Increasingly Severe’

Chinese developers’ credit outlook will be “increasingly severe” amid government efforts to curb rising home prices, Standard & Poor’s said in a report on Sept. 27.

The “correction” in the nation’s property market has already started, Yao Wei, a Hong Kong-based economist at Societe Generale SA, said on Oct. 18. Home prices would need to fall 5 percent to 10 percent before the government eases its curbs, she said.

China’s economy grew 9.1 percent in the third quarter from a year earlier, the government said on Oct. 18. The expansion, the slowest since 2009 following monetary tightening and slower growth in export demand, was less than the median estimate of 9.3 percent in a Bloomberg News survey of 22 economists.

--Bonnie Cao. Editors: Linus Chua, Andreea Papuc

To contact Bloomberg News staff for this story: Bonnie Cao in Shanghai at +86-21-6104-3035 or bcao4@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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