China has been going through slow economic growth for most of this year.
The situation has ensured that the Chinese yuan has been trounced by the euro to settle in third place among the world’s most active currencies used to finance global trade. The accelerated decline in economic performance has also made the yuan the sixth most-used currency in recent years, declining from fifth place. The turnaround started occurring around 2014 and has generally caused a shift in the value of other popular currencies as many investors who carry out foreign trades have shifted demand to currencies such as the dollar and sterling pound.
The yuan has declined 5% versus the dollar this year with a notable accelerated decline since Republican presidential candidate Donald Trump’s win seemed to boost the U.S. dollar versus other major currencies. One Chinese yuan was the equivalent of 0.14 U.S. dollars on Nov. 23.
Most analysts from the Far East Asian financial institutions have also revised down their yuan/dollar forecasts over the next few months, arguing that emerging markets are likely to redirect a greater chunk of their capital outflows to favor the U.S. economy. The hopes are that the Trump-led policies are likely to favor a jump in fiscal spending and increased interest rates will be a big boost as a result.
Chart: The yuan hits a new low versus the dollar
Milder price gains in the real estate value
China's housing market, however, looks bright. Real estate prices in the medium and large cities made slight gains in October to make a turnaround from September and the previous months. The latest housing statistics figures from China show that the average price of a new home has gained half a percent for the top-tier cities of China such as Beijing. The second-tier cities edged up 1.3% over the same period, according to the National Bureau of Statistics releases on Nov. 19.
Even more interesting is that the “mild” gains are only because there are local government policies in place to restrain prices from rising too fast. They could easily have gained more.
There has been a general push to prevent housing prices from growing too fast because of speculative activity. China generally prefers the fundamental value of real estate to decide the price growth and not speculative activity. More than 10 Chinese cities modified existing home purchasing laws so that it became harder to buy a property. For example, most had the down payment requirements raised so that home buyers have less ease in purchasing property for hoarding purposes.
Beijing altered the minimum down payment percentage from 30% to 35% for first-time buyers. For people who are looking forward to purchasing a second home, the requirement is now a 50% down payment.
Gains in real estate value were coupled with lower sales
The increased real estate prices and stricter regulations to curtail speculative overpricing have led to lower sales during October. The tightening moves are aimed at the long-term benefits, but the sales of new and existing homes declined, even with the rise in value.
Sales are projected to decline further in November, even as prices gain. The sales slowed by 2.8 percentage points in Beijing whereas the average for the second-tier cities declined by about one percentage point.
The yuan is defintely one currency to watch as we progress into the 2017.
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