The collapse of China’s property market nearly four years ago continues to reverberate within the country’s economy, forming a bubble that has led to some panicky and unusual responses from Beijing.
For most of this year, the yields on China’s longer term sovereign bonds have been falling, prompting a series of increasingly unusual, even desperate, interventions by the country’s central banks to arrest the declines.
The central bank’s efforts to stabilise the yields have ranged from interventions in the market, to warnings to smaller banks to stop buying bonds, bans on buying and cancellations of trades, investigations of banks, fines, stress tests and instructions to brokers to pull back on their trading. Some smaller banks have been accused on market manipulation and new bond funds have been told to steer clear of longer-dated securities.
In recent weeks the volumes of trading in longer-dated bonds have collapsed to a fraction of their levels at the start of this month after the authorities began warning of “illegal,” speculative trading. It might appear a paradox that the authorities are driving to drive up bond yields even as the PBOC has been reducing its policy rates – albeit that those are short term – in an effort to stimulate lending and economic activity.– the implosion of an earlier bubble – where prices continue to fall, has had a chilling effect of consumer and business confidence and China’s economic growth and particularly activity within the domestic economy, which has essentially stalled.
The property market, until it has clearly stabilised, is not one of them and may not be for some years, given the surplus of housing stock and a declining population.
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