MoM existing home price index declined by 0.7% for BJ, SH and SZ on average.
The yoy comparison worsens to -2% yoy.
Tag: Economy
HKD is USD or not?
HKD is pegged to USD. The fixed range is 1 USD = 7.75 – 7.85 HKD.
However, a weird thing is happening recently.
HIBOR (Hong Kong Interbank Offered Rate) is dropping dramatically.
For a USD-pegged currency, its borrowing rate normally increases or decreases with USD, and is similar to USD, otherwise arbitrage may happen.
Fed’s fund rate currently is 4.25% to 4.50%.
HIBOR 1-month dropped from 4% to below 1%. from May to Jun.
May 2nd, 1 Month HIBOR is 3.98363% vs. Jun 19th, it’s 0.53506%
A 350 bps drop in 1.5 month! Crazy world.
Three things may happen:
1/ Fed to decrease interest rate.
That will probably happen within the next 12month, but not in the July meeting.
Possible in Sep and/or Dec meeting.
2/ HK to limit money outflow.
It will become more like mainland.
But why?
HK doesn’t have the incentive to do this. And Beijing also wants a special international finance center.
Thus, unlikely.
However, there might be more mainland’s RMB converting into HKD – think about SOEs.
Since they are under the direction of Chinese gov, they won’t participate in every corner of the global capital market.
These HKD will behave like under the capital control.
3/ HKD-USD peg breaks
Too big a thing.
In short-term, seems unlikely.
In early May, HKMA needs to sell HKD and buy USD.
In early May, the exchange rate hit the strong-side CU of HK$7.75 to US$1 four times on three trading days, during both Hong Kong and non-Hong Kong trading hours. The HKMA sold HK$129.4 billion in exchange for US$16.7 billion in accordance with the LERS mechanism.
After Fed’s rate decision in June, HKMA expects carry trades may drive USD stronger against HKD and makes HIBOR higher.
If carry trades are to persist, the Hong Kong dollar exchange rate may weaken further, and may even trigger the weak-side Convertibility Undertaking. In such a case, the HKMA would then sell US dollars in exchange for Hong Kong dollars in accordance with the LERS, leading to a corresponding decline in the Aggregate Balance, hence driving Hong Kong dollar interbank rates to gradually increase.
Fourth year of decline in household’s new debt
Charting this…
From Jan to May, China’s household added 834.7 billion mid-to-long-term rmb debt.
This is only ~30% of 2021 level (near 3tn), and 40% of 2016 level (2tn rmb). This is the 4th year of decline of newly added debt; it’s only 3% below 2024 level though.
For the full year of 2016 and 2021, China’s household added 5.7 trillion and 6.1 trillion mid-to-long-term rmb debt.
Household’s mid-to-long-term debt is mostly for home buying.
China’s home price continued to weaken MoM
Following the previous near flattish China’s real estate price in February 2025, China is seeing weakening in Apr and May, despite the yoy comparison still looks okay.
Key cities’ MoM existing home price index % change was -0.3% and -0.7% in Apr and May 2025.
The yoy comparison shows decline of less than 2% – existing home price index is only down 1.8% and down 1.3% in Apr and May 2025.
When we are saying China needs to boost household consumption
First of all, how large is the gap?
China’s household consumption is 39% of GDP, which is lower than EU average of 52%, 70% in the US, and below world’s average.
That’s about $2.3 trillion (13% x $17.8 trillion 2023 GDP).
Secondly, where are the areas to increase?
If look at GDP composition, China needs to increase in real estate services, healthcare, education, professional & technical services, information & communication, recreation & art, etc.
For real estate services, rent & management fees need to increase…
Healthcare and education is partially public spending. So need more gov budget allocation.
Services is essentially a problem of oversupply right now. Either needs to export or needs to increase demand.
Information & communication.. need to raise software prices.
Recreation & art needs more leisure time.
Complications in GDP and consumption calculation
In China, owners’ imputed rent at market rate was only adopted as of 2023 GDP figure – 2023 GDP upward, among which CNY 1.343 trillion (~1% of GDP) is due to market rent approach vs cost approach.
Some public/government sponsored consumption are not counted as household consumption, such as public schools, healthcare etc. Therefore the split will make household % lower, but this won’t change total GDP figure. These are both valued on cost basis in China and EU.
Bizarre Numbers (4)
New home sales is ~60% of China’s home transaction, according to sqft from official stat. (Source: 全年新建商品房销售面积97385万平方米。二手房交易网签面积71812万平方米)
In the US, in 2024, ~700k new home sales vs. 4mn existing home sales. New home sales is ~15% of US home transactions.
60% vs 15%
Weakening home buying in the US
US existing home inventory is going up to a higher level and month to clear is expected to reach 4.4 month, a slightly higher number.
US new home price is down yoy, but volume was strong. Some explains that “less expensive homes are driving sales activity“.
Homebuilder’s sentiment is running at low levels, while builders reported the average price reduction unchanged from the previous month.
Is US trade deficit with China that big?
I don’t think so.
In 2024, US trade deficit with China is slightly lower than $300bn.
To compare, in 2011, US trade deficit with China is at the same level.
Back in 2011, US GDP is $15.6 trillion and that grows to $29 trillion in 2024.
We know the math – the trade deficit with China as % of US GDP is almost halved from 2011 to 2024.
Source: US-China trade deficits over the years.
Existing home price index near flattish in Feb 2025 across tier-1 cities
In Feb 2025, the price index of existing home across BJ/SH/SZ averaged is only -1.4% yoy, about flattish.
As of Mar 2025 data, price index of existing home across BJ/SH/SZ averaged has improved for 6 consecutive month (Oct 2024 – Mar 2025), by about 0.44% every month.
The five month from Oct to Feb month has helped the yoy comparison improve 8.6% (from -10% to -1.4%).
