The beginnings of a disintegrating China - Part I

The Ministry of Finance shortly thereafter announced that the property contract tax had been lowered to 1 per cent from 3 per cent, on purchases of properties that are smaller than 90 square metres. Also, the down payment requirements will be lowered to 20 per cent, from 30 per cent. Real estate was where a lot of “new” money came from in the last ten years. Spending was up because property values were up, just as in the US from 2000 to 2007.

Starting from November 1, the Ministry of Finance said in a statement, “The government will raise export tax rebates for 3,486 products including textiles, clothing, furniture and toys. The tax rebate was raised from 11 to 14 per cent to help exporters cope with lower demand”. This is a stealthy way to boost container loading, since cargo volumes are down 20-50 per cent depending on the port.

These measures are like a doctor treating the symptoms of a patient, not treating the cause of the disease. The trend of shrinking foreign demand is unlikely to reverse, and the new policies are to create domestic consumption and encourage spending. Disposable income from the real estate and manufacturing sectors has dried up in the country. You cannot spend something that you do not have.

Continued here.