<section data-scroll-anchor="false" data-testid="conversation-turn-48" data-turn="assistant" data-turn-id="request-WEB:55d7c6ac-8e6d-4881-ad49-0ed9bf66d1cc-23" dir="auto">
Melbourne’s apartment market entered 2026 with renewed momentum, but the recovery is uneven, policy-driven, and increasingly shaped by constrained supply.

According to the RPM Apartments &amp; Townhomes Market Report (April 2026), apartments have begun to outperform detached housing on key metrics,yet that performance is occurring against a backdrop of falling approvals and a tightening development pipeline.

At the end of 2025, Melbourne unit values reached a three-year high of $656,500, recording quarterly growth of two per cent. That figure edged ahead of the 1.8 per cent growth recorded in the house market over the same period, marking a notable shift in relative performance. While modest in absolute terms, the outperformance is significant given the sustained dominance of houses through much of the previous cycle.

This shift has been driven in large part by policy. The federal government’s expanded five per cent Deposit Scheme has had a disproportionate impact on apartment demand, particularly in Melbourne where the $950,000 price cap captures a large share of medium- and high-density stock.

As RPM notes, the scheme “heavily favours medium and high-density dwellings,” effectively accelerating demand in the apartment sector.

The impact is most visible in buyer activity. Victoria recorded more than 43,000 new housing loans in Q4 2025, the highest quarterly volume since mid-2022 and one of the strongest results in over a decade. This lift was broad-based across all buyer types, with first home buyers, owner-occupiers and investors all returning to the market with greater confidence.

This surge in demand has flowed directly into apartment pricing, particularly in Melbourne’s middle and outer rings. Middle-ring unit values reached approximately $757,500, a four-year high, while outer-ring units climbed to a record $650,000. Quarterly growth of 2.9 per cent and 2.5 per cent respectively significantly outpaced both the inner ring (0.8 per cent) and the broader house market.

&nbsp;

<img alt="RPM" data-entity-type="file" data-entity-uuid="4628dde5-ad63-4b03-b18e-77d0f750e2aa" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-04-24%20at%209.23.32%E2%80%AFAM.png?VersionId=ig6mqc7Oz7UaszRuzULrGtLPUxGf4NJC" />

&nbsp;

The divergence between apartments and houses is also being shaped by affordability. Detached housing remains out of reach for many buyers, pushing demand toward apartments as a more accessible entry point into well-located suburbs. This is particularly evident among first home buyers and downsizers, both of whom are increasingly prioritising location, amenity and lifestyle over land size.

At the same time, population growth continues to underpin demand. Victoria added more than 122,000 residents in the year to Q3 2025, with Melbourne attracting both overseas migrants and interstate movers, partly due to its relative affordability compared to other capitals.

&nbsp;

<img alt="Population" data-entity-type="file" data-entity-uuid="49e10567-a8b3-47c3-afbd-290f0bb62c49" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-04-24%20at%209.22.25%E2%80%AFAM.png?VersionId=.2Drmko4TPh02X55JdF3mIC1EcG0ZfGl" />

However, the most critical factor shaping the apartment market is not demand, it is supply.

Apartment approvals across Greater Melbourne have fallen sharply, signalling a constrained pipeline of future stock. In Q4 2025, just 2,339 apartments were approved, down 20 per cent on the previous quarter and 47 per cent lower than the same period a year earlier. On an annual basis, 11,066 apartment approvals were recorded, an improvement on the previous year, but still well below medium- and long-term averages.

&nbsp;

<img alt="Apartment approvals" data-entity-type="file" data-entity-uuid="12f2e7bc-fe01-40c0-80b5-9e829b279d98" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-04-24%20at%209.21.56%E2%80%AFAM.png?VersionId=5mnIXkXGoDgIJdAFhA0alm0cSKzEytqZ" />

This decline reflects a broader contraction cycle that has been underway since 2020. As RPM notes, “apartment approvals appear to be sliding back into a downward trend,” with developers increasingly focused on launching and completing existing projects rather than initiating new ones.

The reasons are well understood. Construction costs have risen more than 20 per cent since 2021, driven largely by labour shortages and material price escalation. At the same time, financing conditions have tightened, with lenders requiring higher contingencies and taking a more cautious approach to risk. Combined with recent interest rate rises, these factors have made feasibility more challenging, particularly for higher-density projects.

This dynamic is creating a disconnect in the market. Demand for apartments—particularly at the more affordable end—is strengthening, while the pipeline of new supply is weakening. In the short term, this may limit the number of new projects coming to market. Over the medium term, however, it is likely to support price resilience and potentially further outperformance relative to houses.

There are some signs of policy-driven supply response. The introduction of Victoria’s Mid-Rise Code, which streamlines approvals for four- to six-storey developments, is expected to improve delivery in well-serviced middle-ring locations. However, this is unlikely to materially offset the broader decline in apartment approvals in the near term.

Despite the positive momentum at the end of 2025, the outlook for 2026 has become more complex. Two interest rate rises early in the year have already impacted consumer confidence, while broader cost pressures, particularly energy and fuel, are feeding through to construction and development costs.

“Victoria’s built form market ended 2025 on a high, but early 2026 rate rises quickly reversed the momentum,” RPM notes.

The implication is that while apartments are currently outperforming houses, the trajectory of that outperformance will depend on how these competing forces evolve. Policy support and affordability are clearly working in favour of apartments, but constrained supply and rising costs are likely to shape the pace and nature of future growth.

What is increasingly clear is that apartments are playing a more central role in Melbourne’s housing market. As population growth continues and affordability pressures intensify, higher-density housing is becoming not just an alternative to detached homes, but a primary solution to the city’s housing needs.
</section>

Joel Robinson

Units lead Melbourne price growth as apartments outperform houses: RPM

Brunswick is set for some of its largest apartments ever delivered with the upcoming new development Frith &amp; Howarth, where the apartments are around 20 per cent larger than what has come before it in the sought-after suburb.

Developer Young Group focused its design on Frith &amp; Howarth around size and scale, but within a boutique building, to create a mini neighbourhood within the mid-rise development. There are just 24 apartments in the mid-rise building on Victoria Street, a short walk to Brunswick Station and the cafe and dining strip along Sydney Road.

“We spent hours comparing what’s currently on the market so we could offer genuine points of difference,” Young Group says, pointing to room sizing, storage, and functional planning as key drivers behind the design.

All of the two-bedroom apartments in the building have been snapped up, with just the large three- and four-bedroom apartments, with the biggest floorplans and best outlooks, remaining.

[smartcode_project:default project_id=134317 project_image_fid=354139]

Apartments open directly into open-plan living zones where full-height glazing draws light deep into the apartment. Sliding doors extend the space outward to terraces, many oriented toward the adjacent park or back toward the city skyline.

Kitchens sit within this central space, anchored by sculptural island benches that reference the building’s faceted exterior language. Storage is integrated across multiple layers, overhead cabinetry, concealed joinery, and, in larger configurations, dedicated sculleries or butler’s pantries.

[smartcode_project:default project_id=134317 project_image_fid=354137]

The penthouse is the largest ever offered in Brunswick. The penthouse measures nearly 400 sqm all-up, with 242 sqm of internal space complimented by a further 149 sqm of terraces.

It spans the whole top floor and has four bedrooms, four bathrooms, and parking for four cars.

[smartcode_project:default project_id=134317 project_image_fid=354133]

Low maintenance resident amenity has been created in the form of a landscaped rooftop, complete with&nbsp;vegetable plots, outdoor cooking areas, and aflresco dining spaces, designed as a place for neighbours to gather outside of their homes.

“To enable connection with neighbours, generous rooftop gardens with communal spaces and outdoor cooking areas offer a chance to develop a sense of community,” says John Patrick, Principal of <a href="https://www.apartments.com.au/landscape-architect/john-patrick-landscape-architects">John Patrick Landscape Architects</a>.&nbsp;

“Private open spaces with a selection of native and exotic plantings and gorgeous city views on the rooftop create a high-end aesthetic, with a low maintenance lifestyle. The perfect balance, so that residents can enjoy a serene living space.”

[smartcode_project:default project_id=134317 project_image_fid=354134]

Sustainability is embedded at both the building and apartment level. <a href="https://www.apartments.com.au/new-apartments/frith-howarth-288-290-victoria-street-brunswick-vic-3056">Frith &amp; Howarth</a> is one of only a small number of all-electric residential developments in Brunswick, supported by solar infrastructure, EV-ready parking, and high-performance glazing. These measures sit alongside less visible systems such as rainwater reuse and high-grade insulation, reducing long-term operational costs while maintaining consistent internal conditions.

Positioned within walking distance of Brunswick Station, Route 96 trams, and established retail along Sydney Road and Barkly Square, the development balances access to transport with proximity to open space, a combination that has become increasingly difficult to secure in inner-city sites.

“These exquisite homes are nestled in a culturally diverse neighbourhood, with parklands and nature right on your doorstep,” says Young Group.

[smartcode_project_cta:default project_id=134317]

Frith & Howarth to deliver Brunswick’s largest apartments

<a href="https://www.apartments.com.au/new-apartments/prince-parade-by-mirvac-brunswick-701-park-street-brunswick-vic-3056">Prince &amp; Parade</a> in Brunswick is entering its final stages of construction, with the removal of the project’s last tower crane and the unveiling of the building’s full façade marking a significant milestone ahead of completion this coming spring.

The Park Street development, designed by <a href="https://www.apartments.com.au/architects/bates-smart">Bates Smart</a>&nbsp;and Mirvac Design with landscaping by <a href="https://www.apartments.com.au/landscape-architect/jack-merlo">Jack Merlo</a>, is now largely structurally complete, with internal works progressing across the 169-apartment project opposite Princes Park.

<a href="https://www.apartments.com.au/builders/mirvac-construction">Mirvac Construction</a> Project Manager Sam Payne said the latest update reflects a transition from structure to refinement.

“Since our last update, all façade panels have been installed and the scaffolding and gantry has come down, unveiling the building in its full form for the very first time,” Payne said.

“A significant milestone was reached this month with the removal of our final tower crane, signalling the completion of major structural works and a pivotal step forward in the building’s transformation.”

[smartcode_project:default project_id=4802 project_image_fid=366856]

Apartments are now well advanced internally, with joinery completed to level eight and tiling to level six, alongside the delivery of a prototype apartment used to set the benchmark for the remaining residences.

This next phase coincides with the release of a completed furnished residence, styled by MCM House, and the introduction of private buyer tours, giving purchasers a clearer understanding of the finished product ahead of settlement.

<a href="https://www.apartments.com.au/new-apartments/prince-parade-by-mirvac-brunswick-701-park-street-brunswick-vic-3056">Prince &amp; Parade</a> will comprise 169 one to four-bedroom apartments, with completion targeted for early spring. Interiors focus on natural materials and muted tones with two design schemes, while kitchens and bathrooms adopt a restrained palette anchored by stone, timber and textured finishes.

Bates Smart Director Jeffery Copolov said the project reflects a shared design direction centred on liveability and sustainability.

“Blending Mirvac and Bates Smart’s focus on wellness and sustainability, <a href="https://www.apartments.com.au/new-apartments/prince-parade-by-mirvac-brunswick-701-park-street-brunswick-vic-3056">Prince &amp; Parade</a> offers a new kind of conscious, elevated living in Melbourne’s inner north,” Copolov said.

<a href="https://www.urban.com.au/new-apartments/prince-parade-by-mirvac-brunswick-701-park-street-brunswick-vic-3056">Prince &amp; Parade</a> presents Mirvac's third parkside collaboration with&nbsp;<a href="https://www.urban.com.au/architects/bates-smart">Bates Smart</a>&nbsp;in Victoria.&nbsp;Their previous collaborations delivered two of the city’s landmark apartment buildings: The Melburnian opposite Kings Domain and The Eastbourne on Fitzroy Gardens.

[smartcode_project:default project_id=4802 project_image_fid=366857]

A key focus of the development is its landscape-led amenity offering. The central courtyard, spanning around 600 sqm, will feature established trees and planting grown off-site, alongside communal lawns and seating areas designed for everyday use.

Development Manager James Gardner said the outdoor spaces are central to the project’s lifestyle positioning.

“<a href="https://www.apartments.com.au/new-apartments/prince-parade-by-mirvac-brunswick-701-park-street-brunswick-vic-3056">Prince &amp; Parade</a> isn’t just a home, it’s a complete lifestyle offering, and the resident amenity is just one example of the elevated living experience the soon-to-be-complete building will be known for,” Gardner said.

The courtyard connects to a series of shared indoor and outdoor spaces, including a residents’ lounge, dining room, library and secondary west-facing garden area, designed as extensions of the apartments themselves.

Located directly opposite Princes Park and around four kilometres from the CBD, the development places residents within one of Melbourne’s most established inner-north precincts, with access to open space, transport and the retail and hospitality offerings of Brunswick and Carlton.

With façade works complete and landscaping and final finishes now underway, <a href="https://www.apartments.com.au/new-apartments/prince-parade-by-mirvac-brunswick-701-park-street-brunswick-vic-3056">Prince &amp; Parade</a> is moving into its most active construction phase, with permanent services and external works to be finalised in the coming months ahead of completion in spring.

[smartcode_project_cta:default project_id=4802]

Mirvac’s latest landmark, Prince & Parade Brunswick, enters final construction phase

Boutique Perth developer ADC has unveiled its latest project.

The developer, which focuses on bringing apartments to some of Perth's most premium inner-city and riverside suburbs, has launched <a href="https://www.apartments.com.au/new-apartments/mos-lane-mosman-park-46-manning-street-mosman-park-wa-6012">Mos Lane</a>, 68 luxury apartments and townhouses in the heart of <a href="https://www.apartments.com.au/developments/mosman-park-wa-6012">Mosman Park</a>.

<section data-scroll-anchor="true" data-testid="conversation-turn-124" data-turn="assistant" data-turn-id="request-69e027bc-1530-839b-a316-e9dad2cbd4d9-34" dir="auto">
Alongside the one-, two-, three- and four-bedroom apartments, the development will also include five two-level townhomes and two luxe penthouses. ADC is also introducing a significant retail offering for residents through Mos Lane Village, which will feature a wellness studio, fish and chips shop, barber, and florist, adding a layer of amenity not typically found in the predominantly residential Mosman Park area.

Construction has already commenced on the project, which sits just a short walk from the Swan River, Mosman Park Bowls Club, and Mosman Park Golf Course.

House Agency Directors Tom House and Lachlan McDonald say they are fielding the majority of buyer interest from local downsizers, as well as buyers with a long-standing affinity for Mosman Park.
</section>

[smartcode_project:default project_id=148957 project_image_fid=364591]

Mos Lane will comprise two buildings; Samson House and Manning House, which have been designed by&nbsp;<a href="https://www.apartments.com.au/architects/nelson-koo">Nelson + Koo</a>, an emerging design consultancy specialising in the masterplanning and design of mixed use places and spaces.

The two buildings adopt distinct architectural responses to their surroundings. Manning House references the strong roof forms of nearby homes, with floorplates oriented to maximise light and long-range views, while Samson House is organised around a central atrium designed to bring daylight deep into the building and create a greater sense of openness.

At ground level, the inclusion of five townhomes introduces a typology more commonly associated with Mosman Park’s established streets, each with private courtyards and direct frontage, offering a transition between traditional housing and apartment living.

[smartcode_project:default project_id=148957 project_image_fid=364103]

Interiors have been led by Melbourne-based Hecker Guthrie, with an emphasis on practical, long-term liveability. Residences incorporate sculpted joinery, generous storage and flexible multi-purpose rooms that can adapt to changing household needs, whether for working from home, guest accommodation or additional living space.

Material selections draw on a restrained palette of textured stone, timber and neutral tones, with options for lighter or darker schemes. Detailing such as fluted glass, full-height joinery and integrated appliances is intended to balance functionality with a more refined residential finish.

Outdoor spaces are a consistent feature across the development, with balconies and terraces designed for dining and entertaining, and larger apartments incorporating outdoor kitchens. Orientation has been considered to allow residents to choose between morning or afternoon sun, while mature street trees and landscaped communal areas contribute to a softer streetscape.

[smartcode_project:default project_id=148957 project_image_fid=364107]

Shared amenities are positioned to support both day-to-day convenience and occasional use. These include a private dining room with a caterer’s kitchen, alfresco entertaining areas, and a bookable guest suite for visiting friends and family. Additional practical features such as a resident workshop, storage facilities, car and pet wash areas, and concierge-style services for cleaning and dry-cleaning collection reflect a focus on usability.

Positioned between the Swan River and Cottesloe Beach, and within reach of schools such as Iona Presentation College and St Hilda’s Anglican School, the development is aimed at a broad buyer group, from downsizers seeking a lower-maintenance alternative to larger homes, through to local residents looking to remain in the area in a different housing format.

Mos Lane represents one of the more significant additions to Mosman Park’s limited pipeline, combining new housing supply with a village-style retail centre in a suburb where opportunities for large-scale redevelopment are relatively constrained.

[smartcode_project_cta:default project_id=148957]

Living village precinct set for Mosman Park as ADC launches Mos Lane

An entity linked to I&amp;D Group Founder Ivan Filipović has filed plans for a new residential development at 188–202 Swan Street in Cremorne, targeting a prominent site within the tightly held Swan Street activity corridor.

The proposal seeks to redevelop the consolidated Swan Street landholding into a <a href="https://www.apartments.com.au/new-apartments/188-202-swan-street-cremorne-vic-3121">high-density mixed-use project</a>, replacing a series of existing commercial buildings with a significantly scaled residential outcome. The planning submission positions the development as a response to increasing demand for housing in well-connected inner-urban locations, particularly within established activity centres.

Plans outline the construction of a 14-storey building delivering 165 apartments above a four-level basement, alongside a ground-floor retail and commercial offering designed to activate the streetscape. A key feature of the scheme is a new north–south pedestrian link connecting Swan Street to Railway Place, intended to “enhance permeability and provide an active, publicly accessible connection through the site.”

<img alt="First Look: Plans lodged for Ivan Filipović-linked Cremorne apartment project on Swan Street" data-entity-type="file" data-entity-uuid="7332a8f8-dd2b-483d-b86e-320658838c84" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/cremorne.png?VersionId=cXm8vAaRdHh.LpYVbecrRkjckgu9mtAF" />

The development will retain part of the existing built form at 198–200 Swan Street, while the remainder of the site will be cleared to accommodate the new structure. Basement levels will provide 196 car spaces and 113 bicycle spaces, with vehicle access from Railway Place. Communal amenity is distributed across the building, including a shared outdoor area on Level 1 and a rooftop terrace for residents.

Ground level uses include retail tenancies fronting Swan Street and the pedestrian link, a residential lobby, and a flexible commercial space positioned to support community-oriented uses. The planning report notes this space “could be offered as a flexible space within the development for community groups,” supporting short-term or longer-term occupancy arrangements.

<img alt="First Look: Plans lodged for Ivan Filipović-linked Cremorne apartment project on Swan Street" data-entity-type="file" data-entity-uuid="8208bf7b-cc67-485d-ad0f-1d73a74c907f" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/cremorne%20lane.png?VersionId=69ctjC0txXv0zCHy7qQUpJyGwvPAT7gw" />

The site sits within the Swan Street Major Activity Centre, surrounded by a mix of retail, hospitality, and emerging residential development, and directly opposite tram services along Swan Street. East Richmond Station is located to the south, providing strong rail connectivity, while the broader Cremorne precinct continues to evolve as a mixed-use hub.

I&amp;D Group, founded by Ivan Filipović, is regarded as one of Victoria’s largest formwork contractors, partnering with major construction firms across large-scale public and private developments. The Swan Street proposal signals a move into development-backed opportunities tied to strategic inner-city sites.

First Look: Plans lodged for Cremorne apartment project on Swan Street

Chinese Economy

<html><body>
GUEST OBSERVATION
When former Trade Minister Andrew Robb took to the ABC’s <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/news/2019-03-12/andrew-robb-blames-coalition-leaders-for-toxic-china-relations/10891384" target="_blank">AM program</a> to sound off about a “toxic” relationship between Australia and China, he exposed a rippling debate about how to manage an increasingly comlex foreign and security policy challenge.
Long gone are the days of the John Howard formula that <a href="https://pmtranscripts.pmc.gov.au/release/transcript-10335" target="_blank">Australia did not have to choose</a> between its history, meaning America, and its geography, meaning China. Choices are no longer binary.
While the Robb word “toxic” may be an exaggeration, stresses in Australia-China relations are such it is clear we have entered a new and more challenging phase.
For a start, China is undergoing what is, arguably, the most testing moment of an economic transformation that began in 1978 at the third plenary of the 11th Central Committee of the Chinese Communist Party. This is when <a href="https://theconversation.com/world-politics-explainer-deng-xiaopings-rise-to-power-103032" target="_blank">Deng Xiaoping re-emerged</a> to initiate one of the more remarkable economic shifts of the modern era.
Apart from a hiatus caused by the Tienanmen uprising in 1989, and an economic soft-landing in the mid-1990s, China has bounded ahead economically, and has seemed unstoppable – until now.
China’s economy and political system has encountered the sort of difficulties that were inevitable. Put simply, an investment driven – as opposed to consumer-led – model is running its course, <a href="https://www.bloomberg.com/news/articles/2019-02-24/china-deleveraging-is-dead-as-34-trillion-debt-habit-roars-back" target="_blank">piling up massive government and bank debt in the process</a>.
China risks becoming caught in a <a href="https://www.bloomberg.com/opinion/articles/2019-01-13/xi-s-leading-china-s-economy-into-the-middle-income-trap" target="_blank">“middle income trap”</a> in which a developing country, having enacted the easier reforms, gets stuck in second gear in its effort to push ahead with its economic transformation.
You can only build so many road, bridges, fast trains, airports, ports and housing developments. Many of the latter have become “ghost cities”.
At this month’s National People’s Congress, the annual session of China’s “parliament”, Premier Li Keqiang gave what was, by Chinese standards for these sort of cheerleading events, an <a href="https://www.latimes.com/world/la-fg-china-economy-growth-20190305-story" target="_blank">unusually downbeat assessment of challenges ahead</a>.
China, Li said, faces difficulties “of a kind rarely seen in many years”.
What is undeniable is that China’s economy is faltering, its ability to create millions of new jobs annually to employ a restless population is being stretched, and its management of a continuing economic transformation has come under unusual stress. <a href="https://www.bbc.com/news/business-45899310" target="_blank">US-China trade tensions</a> are not helping.
In counterpoint to the need for a more dynamic economic environment, its leadership, under President Xi Jinping, is asserting even tighter political controls when it should be giving freer rein to its entrepreneurial class.
This is the central contradiction of a model that has delivered what is the most extraordinary event in world economic history since the industrial revolution. But that model clearly has its limitations compared with those, say, of neighbouring Japan, South Korea and Taiwan.
From an Australian perspective, a slowing and, perhaps more to the point, anxious China is not good news. While economists might argue that a slowdown and thus the need for Beijing to stimulate its economy by ramping up infrastructure projects will benefit iron ore and coal exporters, <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/news/2019-01-29/china-not-house-price-downturn-the-major-risk-deloitte/10750342" target="_blank">economic pressures more generally should be concerning</a>.
A Chinese regime that feels itself under stress from within and without may prove to be more cantankerous, and unpredictable. Australian policymakers should be mindful of the consequences of China getting through this difficult stage without mishap.
Of course, forests have been felled publishing predictions China would be unable to maintain its remarkable transformation since early glimmers of an opening to the outside world appeared in 1978, two years after Mao Zedong’s death.
This brings us back to Andrew Robb’s observation about a “toxic” relationship between Beijing and Canberra. Referring to the shelving of a plan to develop a health precinct in China to match that of the Texas Medical Centre – the world’s largest medical facility – Robb said central government officials had kyboshed the arrangement due to ongoing tensions with Australia.
Australian medical professionals would have helped establish the facility. Robb said Landbridge (the company for which Robb was consulting) was told in no uncertain terms by the seniors officials that unfortunately the relationship between Australia and China had become so toxic that this would be put in the bin.
Leaving aside Robb’s own chagrin at losing a lucrative consultancy, what is the fair judgement about the state of Australia-China relations?
And, what of Robb’s criticism of sections of the Australian security establishment, notably the Australian Strategic Policy Institute? He accused ASPI, a hothouse of China negativity, of being “a mouthpiece of the US security agencies and its defence industry”.
Given ASPI’s hawkish views on China more generally, Robb has a point.
His assessment is correct that China-Australia relations were off-track when the decision was made to scupper the Landbridge-proposed medical facility. But it is also the true that by the end of last year the relationship had been “reset”.
Foreign Minister <a href="https://theconversation.com/australia-and-china-push-the-reset-button-on-an-important-relationship-106428" target="_blank">Marise Payne went to China in November</a> for what was described as a cordial exchange. This followed a two-year freeze in relations during which no senior Australian official was welcomed in Beijing.
China had made no secret of its displeasure over speeches delivered over time by both then <a href="https://www.malcolmturnbull.com.au/media/keynote-address-at-the-16th-iiss-asia-security-summit-shangri-la-dialogue" target="_blank">Prime Minister Malcolm Turnbull</a> and then <a href="https://foreignminister.gov.au/speeches/Pages/2017/jb_sp_170313a.aspx" target="_blank">Foreign Minister Julie Bishop</a> in which they had criticised Beijing’s expansionist activities in the South China Sea, and, in Bishop’s case, China’s political model.
Turnbull compounded the situation when he misappropriated an expression attributed to Mao in proclaiming the People’s Republic on October 1, 1949. Australia had “stood up”, Turnbull said, when unveiling laws designed to curb foreign interference in Australian domestic affairs.
Next day, Turnbull made things worse by <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/news/2017-12-09/malcolm-turnbull-says-he-will-stand-up-for-australia/9243274" target="_blank">repeating Mao’s words in Mandarin</a> in his description of legislation that was clearly aimed at Chinese influence.
So what of Robb’s comments? Whatever toxicity existed between Canberra and Beijing seems to have dissipated somewhat. However, real risks remain in management of what is Australia’s most challenging relationship.
It is no good pretending otherwise. China is not a benign power. It will seek to get away with what it can. It resists abiding by a roadmap for a rules-based international order, as we understand it. It will use cyber technology ruthlessly to advance its interests by dubious means, on occasions. It will “disappear” foreign nationals of those countries which incur its displeasure. It will invest in agents of influence in the Australian system. This includes universities.
All this requires a level of vigilance on the part of the security agencies, and, possibly, a new White Paper aimed specifically at just how Australia might manage a complex relationship that is likely to become, more, not less, complicated.
Bear in mind <a href="https://dfat.gov.au/trade/resources/Documents/chin.pdf" target="_blank">one in three export dollars</a> depends on a functioning relationship with China.
This is an unsatisfactory situation, but it is the reality.
On the other hand, no purpose is served by yielding to a Canberra security establishment whose machinations risk chilling a relationship that needs to be warmed up, not cooled down.
Former ambassador to China, Stephen Fitzgerald, proffered some good advice this week when he said in a <a href="https://www.theaustralian.com.au/opinion/columnists/troy-bramston/why-canberra-must-reset-its-relationship-with-china/news-story/ab9403cb437c2f53b68ca760609908c8" target="_blank">newspaper interview</a> that Australia needed to deepen its engagement with China rather than draw back, since, unlike the US, we are “living in a Chinese world”.
That, whether we like it or not, is the case.<img src="https://counter.theconversation.com/content/113545/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;">
Tony Walker, Adjunct Professor, School of Communications, La Trobe University
This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/chinese-australia-relations-may-not-be-toxic-but-they-do-need-to-keep-warming-up-113545" target="_blank">original article</a>.
</body></html>

j.ballantyne1990-6AQqhLzZaK

Chinese-Australia relations may not be ‘toxic’, but they do need to keep warming up

<html><body>
GUEST OBSERVATION
Chinese infrastructure investment in Australia has rarely left the headlines lately. It’s reported that telecommunications giant Huawei will likely be banned from building Australia’s 5G network on national security grounds. Hong Kong-based company CK Infrastructure’s bid to buy APA Group’s gas pipeline network is also proving controversial.
Scrutiny of the national security implications of infrastructure has been upgraded. The new Critical Infrastructure Centre is assisting the Foreign Investment Review Board in this. Though not made explicit, the main focus is China.
Greater scrutiny of investment projects is welcome, especially if community and environmental concerns are also considered. However, Australia could benefit from the availability of Chinese infrastructure financing.
Australia’s north has significant infrastructure needs. And in the major Australian cities, public transport systems are inadequate, leading to ever-longer commuting times. China also possesses world-class expertise in high-speed rail, which could be harnessed to better connect cities on the eastern seaboard.
Given the state of relations with China and Australia’s pressing infrastructure needs, the Australian government must develop a clear strategy for Chinese infrastructure investment. Instead of passively scrutinising bids, the government should proactively identify worthwhile projects and engage Chinese counterparts to finance and implement them.
Belt and Road isn’t just a political ploy
A proactive approach could benefit Australia because Chinese infrastructure investment is not as strategically directed as many assume. This is clear if we examine the Belt and Road Initiative (BRI) – the centrepiece of China’s global infrastructure financing spree.
The Australian government, on security officials’ advice, has not joined the BRI. However, Belt and Road is not a carefully planned “grand strategy”. It is largely driven by the diverse activities of state-owned enterprises competing for projects and financing.
President Xi Jinping has undoubtedly used the BRI to signal China’s rise to “great power” status. But its main drivers are domestic and commercial. At its core, the BRI is an effort to alleviate China’s industrial overcapacity problem in key sectors, such as steel, glass, cement and aluminium.
Overcapacity has worsened since the global financial crisis, as Beijing sought to maintain growth by encouraging an infrastructure construction boom. State-owned enterprises (SOEs) spearheaded this. After profitable domestic opportunities had dried up, international expansion became attractive, to keep SOEs working and to find more productive outlets for China’s huge foreign currency reserves.
The BRI’s implementation has reflected competition, lobbying and compromises among ministries, provinces and SOEs. Its masterplan document – “Vision and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road” – is a case in point. It contains 50 “priority areas”. These cover virtually every governmental and non-governmental activity, showing little actual prioritisation.
Early statements suggested a BRI focus on Central and Southeast Asia. But since 2015 the initiative has been formally opened to all countries. This was again due to intense lobbying from provinces, SOEs and some foreign governments. All are keen to get some of the action, suggesting little strategic direction.
The vague and loose Belt and Road plan has enabled considerable scope for interests within the Chinese party-state to use it for their own, economically motivated, agendas, with little consideration for Beijing’s wider diplomatic objectives. This has generated a rather chaotic, “bottom-up” process for selecting and funding projects.
Belt and Road project ideas usually emerge from state-owned enterprises’ in-country subsidiaries. After spotting an opportunity, they try to build support in the recipient government. Occasionally, this includes bribing officials. They also often seek to obtain the local Chinese embassy’s support to improve lobbying back home.
Once agreement with the recipient government is reached, the SOE or the recipient government applies for financing from China’s policy or commercial banks. The banks determine whether to extend credit after assessing repayment capacity. The central government’s involvement is typically limited to the National Development and Reform Commission’s formal approval.
Australia still needs to manage the risks
Chinese infrastructure projects are not risk-free. The potential for misuse of key infrastructure to serve Chinese strategic agendas is clearly the Australian government’s foremost concern. But there are more immediate issues too.
Chinese banks’ lending standards are well below world “best practice”. They give limited consideration to social, environmental and labour protections when awarding financing to projects.
Tough competition between Chinese companies means they have strong incentives to cut corners and promote projects that recipients do not need. The latter can be saddled with unnecessary infrastructure and potentially unsustainable debt. Furthermore, Chinese central agencies’ capacity to regulate SOEs’ offshore activities is weak, so they cannot be relied upon to manage these problems.
Closer scrutiny of investment proposals is, therefore, clearly necessary. So, too, is tight regulation of project implementation. Australian regulators should also ensure Chinese projects adequately resolve social, environmental and labour concerns.
The fragmented nature of Chinese investments provides opportunities, however, for selective engagement that could serve the wider public interest. This should form part of a clear Australian strategy towards China based on a nuanced analysis of both the threats and opportunities of this multifaceted relationship.
Shahar Hameiri, Associate Professor of International Politics, The University of Queensland
This article was originally published on <a href="http://theconversation.com" target="_blank">The Conversation</a>. Read the <a href="https://theconversation.com/whats-driving-chinese-infrastructure-investment-overseas-and-how-can-we-make-the-most-of-it-98697" target="_blank">original article</a>.
</body></html>

What's driving Chinese infrastructure investment overseas and how can we make the most of it?

The risks and opportunities of our deepening economic ties with China: RBA's Philip Lowe

<html><body>
This year the Chinese Communist Party will tackle some of it’s biggest economic hurdles.
In 2017, we saw the consolidation of China’s power and influence globally, and of Communist Party leader Xi Jinping’s power nationally. This year, the party will try to use this to tackle some of its biggest economic hurdles such as financial risk, environmental pollution and maintaining social cohesion.
A first and overriding priority will be managing and preventing major financial risks within the Chinese economy. China will continue to clean up and tighten controls over its financial sector.
Beijing has already banned risk-laden <a href="https://www.forbes.com/sites/kenrapoza/2017/11/02/cryptocurrency-exchanges-officially-dead-in-china/#79cae9a2a839" target="_blank">Bitcoin from its financial system</a>, and <a href="http://www.xinhuanet.com/english/2017-12/25/c_136851284.htm" target="_blank">the government says</a> it will maintain a “proactive fiscal policy and prudent monetary policy” for 2018.
This is in line with moves earlier in 2017 to curb credit growth and consolidate the country’s <a href="https://www.caixinglobal.com/2017-11-27/financial-regulators-seek-to-tame-chinas-15-trillion-wild-west-101176493" target="_blank">100 trillion yuan (US$15 trillion) financial services asset-management industry</a> under a single regulatory umbrella.
Regulators have also issued <a href="http://www.scmp.com/news/china/economy/article/2124964/china-issues-new-code-conduct-tame-overseas-investors" target="_blank">a 36-point code of conduct</a> for the country’s private enterprises to follow when investing overseas. This is part of a move to clip the wings of China’s most aggressive global deal makers, firms like HNA Group and Fosun International. These businesses responded enthusiastically to the government’s “going out” policy to link China to the rest of the global economy, launched at the beginning of the century.
On the one hand, China has banned investments in gambling and “sensitive” industries and restricted investments in property, hotel, film and sports. But projects linked to China’s ambitious Belt and Road initiative <a href="https://www.bloomberg.com/news/articles/2017-08-18/china-further-limits-overseas-investment-in-push-to-reduce-risk" target="_blank">are actively encouraged</a>. So 2018 should see a continuation of China’s expanding economic influence globally through infrastructure and other major projects.
<a href="https://images.theconversation.com/files/201458/original/file-20180110-48505-14mg7t0.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/201458/original/file-20180110-48505-14mg7t0.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a>
Beijing’s agenda is clear and the message from the centre is tightly controlled. How Hwee Young/AAP
<h2>Tackling pollution, of all kinds</h2>
In line with the party’s focus on stability and risk minimisation is a clear determination to move away from high-speed growth to high-quality growth. “Quality” here means an economy that is cleaner and more user friendly.
The government is trying to reduce pollution. Measures to close down polluting factories and make local officials more accountable for environmental damage <a href="https://cen.acs.org/articles/95/i26/China-looks-restore-blue-skies" target="_blank">are starting to make a difference</a>.
A major component of the shift to a cleaner economy is China’s determination to free itself <a href="https://www.reuters.com/article/us-china-economy-trade-coal/china-oct-coal-imports-fall-to-21-28-million-tonnes-on-air-pollution-campaign-idUSKBN1D80FG" target="_blank">from any reliance upon carbon imports</a>. This has potentially major implications for the Australian economy, which has done so well over the past few decades largely because of its commodity exports to China.
China is also no longer willing to accept imports of Australian waste, leaving Australia with the question of how else to deal with <a href="https://www.propertyobserver.com.au/http://www.abc.net.au/news/2017-12-10/china-ban-on-foreign-rubbish-leaves-recycling-industry-in-a-mess/9243184" target="_blank">its accumulating stockpiles</a>.
Social stability for economic and political stability
In an unusual move during last year’s annual end-of-year economic convention, the government <a href="http://www.scmp.com/news/china/economy/article/2125135/big-picture-chinas-most-important-economic-meeting-year" target="_blank">detailed concerns from the wider public</a> on issues such as online scams, sex discrimination in the workplace and a lack of kindergarten services in certain regions. This reflects the party’s concern with social cohesion.
Maintaining a harmonious society has long been a concern of China’s leaders. In 2018, the anti-poverty campaign - one of Xi Jinping’s pet projects - will accelerate, with millions of rural poor being relocated <a href="https://www.theguardian.com/world/2018/jan/07/china-move-millions-people-homes-anti-poverty-drive" target="_blank">to new housing with water and power</a>. This will not only boost GDP and economic growth figures, it’s also aimed at promoting support for the party and its leaders.
Chinese leadership’s emphasis on social harmony extends to supporting the party in its policy endeavours. A series of recent measures have been aimed at strengthening party organisations in <a href="https://www.reuters.com/article/us-china-ngos/china-to-strengthen-communist-partys-role-in-non-govt-bodies-idUSKCN10X07C" target="_blank">business and civil society organisations</a>.
In line with existing provisions <a href="http://www.fdi.gov.cn/1800000121_39_4814_0_7" target="_blank">in China’s Company Law</a>, these measures seek to ensure that all organisations in China (local and foreign, commercial and non-profit) make room within the organisation for the operations of a Communist Party cell. This allows the party to monitor and influence the operations of any organisation.
The rolling out of a social credit system is also aimed at monitoring and influencing the behaviour of <a href="http://www.wired.co.uk/article/chinese-government-social-credit-score-privacy-invasion" target="_blank">both organisations and individuals</a>. It operates by awarding social credit points for good social behaviour, whether it be corporate philanthropy or an individual picking up rubbish on the kerbside. It also deducts points for bad behaviour, such as traffic law violations, failing to pay bills on time or domestic violence. There are even <a href="http://www.scmp.com/news/china/economy/article/2095876/new-credit-rating-system-gives-china-big-carrot-even-bigger-stick" target="_blank">“blacklists”</a> for the worst offenders.
Beijing’s agenda is clear and the message from the centre is tightly controlled. But the messiness and the unknowns will lie in its local implementation.
China has always struggled, and always will struggle, with the question of how to balance direction from a central government with local implementation for local circumstances.
For example, a recent decree requiring all local areas to move away from coal fired heating, towards natural gas, hit a snag when thousands of houses and schools were <a href="http://www.scmp.com/news/china/policies-politics/article/2124800/why-chinas-winter-fuel-crisis-cold-hard-lesson-law" target="_blank">left without heating in freezing conditions</a> in northern China. It forced authorities to back-track on implementing the policy.
The key for the government will be to strike a balance between reform and preserving stability. Aggressive reforms will be duly countered by other policies if they are seen as posing risks to economic stability.
<img src="https://counter.theconversation.com/content/89911/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">If successful, China’s reforms will allow its economy to take the lead in adapting to a dynamic world. But the sheer size of its ambitions (both global and local) also contains the risk that failures, if they occur, could have devastating impacts.
<a href="https://theconversation.com/profiles/alice-de-jonge-118840" target="_blank">Alice de Jonge</a>, Senior Lecturer, International Law; Asian Business Law, <a href="http://theconversation.com/institutions/monash-university-1065" target="_blank">Monash University</a>
This article was originally published on <a href="http://theconversation.com" target="_blank">The Conversation</a>. Read the <a href="https://theconversation.com/what-we-can-expect-from-chinas-economy-in-2018-89911" target="_blank">original article</a>.
</body></html>

What we can expect from China's economy in 2018

<html><body>
GUEST OBSERVER
There was little change in most of China’s key monthly indicators in May. ‘Old economy’ measures, such as industrial production and fixed asset investment were flat or slightly higher (in real terms), while real retail sales were marginally weaker.
As we suggested last month, these indicators suggest slightly softer economic conditions in Q2, compared with the relatively strong rate in Q1. Our forecasts remain unchanged, with China’s economy to grow by 6.5% in 2017, before slowing to 6.25% next year and 6.0% in 2019. China’s industrial production grew by 6.5% yoy in May – unchanged from the rate recorded in April. Construction related heavy industrial sectors (such as crude steel and cement ) saw much weaker growth. China’s fixed asset investment recorded slightly weaker growth in May – at around 7.9% yoy (from 8.3% in April). That said, weaker inflation trends for investment goods meant that real fixed asset investment was slightly higher (1.5% in May, up from 0.9% in April). Real estate investment has remained comparatively strong, however we continue to anticipate a slowdown in construction activity this year – given tighter financial and policy constraints – which should flow through to industrial production and demand for Australian commodity exports. China’s trade balance edged slightly higher in May – to US$40.8 billion (from US$38.0 billion in April). Both imports and exports were higher month-on-month (with the increase in exports stronger). Commodity prices have had a major impact on import values (and likely export values as well given producer price trends) – with values likely to slow across the second half of the year – in line with weaker commodity price forecasts. Growth in retail sales was unchanged in May – with nominal sales rising by 10.7% yoy. The uptick in inflation during the month meant that real retail sales were slightly weaker – albeit stronger than the growth across most of 2016. Consumer confidence pushed higher in April – up to 113.4 points (the highest level recorded since June 2007). Chinese monetary policy remained comparatively stable in across May and early June – with the 7 day Shibor trading in a narrow range of just under 9 basis points around the 2.9% mark. This represents around 40 basis points of tightening since the start of the year. Our monetary policy views are unchanged – we believe that the PBoC has a tightening bias, but will be cautious in doing so, in an attempt to manage the risks associated with the country’s high corporate debt levels.
China’s industrial production grew by 6.5% yoy in May – unchanged from the rate recorded in April. This was stronger than market expectations (6.4% in the Bloomberg poll and 6.3% in the Thomson Reuters poll) and higher than the trend seen across much of the past two years.
<a href="https://www.propertyobserver.com.au/images/2017/06/19/3a.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/06/19/3a.png" width="700" height="474"> Construction related heavy industrial sectors saw much weaker growth – with crude steel output rising by just 1.8% yoy to 72.3 million tonnes (down from record production levels in April), while cement production rose by just 0.5% yoy. In contrast, motor vehicle production was stronger – up by 4.1% yoy in May (compared with 0.3% in April), while growth in electricity output eased to 5.0% yoy (from 5.4% previously). There were mixed trends in China’s main industrial surveys in May. The official NBS PMI survey was unchanged at 51.2 points. In contrast, the Caixin Markit PMI fell further – down to a slightly negative 49.6 points (from 50.3 points in April).
<a href="https://www.propertyobserver.com.au/images/2017/06/19/3b.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/06/19/3b.png" width="700" height="482">
China’s fixed asset investment recorded slightly weaker growth in May – at around 7.9% yoy (from 8.3% in April). That said, the decline in prices for investment goods probably outpaced the fall in nominal investment – given recent trends in producer prices and commodity markets – meaning that real fixed asset investment has trended slightly higher. Our estimate suggests real investment grew by 1.5% in May, up from 0.9% in April.
<a href="https://www.propertyobserver.com.au/images/2017/06/19/4a.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/06/19/4a.png" width="700" height="468"> Private sector investment edged slightly higher in May – rising by 6.6% yoy(on a three month moving average basis) – albeit this remains below the growth rate of early 2016 (prior to the plunge mid-year). In contrast, investment by state owned enterprises dipped to 12.2% yoy (3mma), from 13.7% previously. Despite measures designed to cool the sector, investment in real estate has continued to grow strongly – rising by 8.8% yoy (3mma) in May – down from 9.3% last month. Manufacturing investment was slightly stronger – at 5.3% yoy (3mma) from 4.8% previously. Efforts by authorities at central and local levels to control property prices (including larger down payments, higher lending rates and purchasing restrictions) are yet to show widespread results. Month-on-month prices rose by 0.5% for new builds and 0.7% for existing properties in April (both stronger than March) according to NBS data. That said, unofficial data for May (released by the Chinese Academy of Social Sciences) suggests that prices in some key cities – including Beijing and Tianjin – may have fallen in May. New residential construction starts recorded weaker growth in May – at 8.4% yoy (down from 16.6% in April) – although it is unclear if this a slowing trend or merely volatility in the data. On a three month moving average basis, the slowdown was less pronounced – at 15.1% yoy (down from 17.5%). We continue to anticipate a slowdown in construction activity this year – given tighter financial and policy constraints – which should flow through industrial production and demand for Australian commodity exports.
<a href="https://www.propertyobserver.com.au/images/2017/06/19/4b.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/06/19/4b.png" width="700" height="474">
China’s trade balance edged slightly higher in May – to US$40.8 billion (from US$38.0 billion in April). Both imports and exports were higher month-on-month (with the increase in exports stronger). China’s imports were stronger in May – at US$150.2 billion (compared with US$142 billion in April) – with this representing a year-on-year increase of 14.6%. This increase was in part driven by commodity price trends – with the RBA Index of Commodity Prices increasing by 29% yoy in May. This means that import values are likely to slow across the second half of the year – in line with forecasts of weaker commodity price growth.
<a href="https://www.propertyobserver.com.au/images/2017/06/19/5b.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/06/19/5b.png" width="700" height="491">
 In contrast, the overall volume of imports has increased more modestly. While import values have risen by around 19% in the first five months of the year, our estimate of volumes is just 6.4% higher. Trends continue to diverge when it comes to the import volumes of key commodities. Coal imports recorded strong year-on-year growth – at almost 17% – although the May level was 18% below last November’s peak. The surge in coal imports – particularly across the second half of last year – was driven by government policy that constrained domestic supply, and there remains considerable uncertainty around the longer term – with both domestic demand and supply falling (the latter through enforced mine closures). Crude oil imports rose by 15% yoy in May, while iron ore imports rose by 5.5% yoy – despite iron ore stocks reaching record levels in May (while prices for ore continued to fall). Copper imports fell by 9.3% yoy – a trend evident for the past nine months.
The value of China’s exports rose in May – totalling US$191.0 billion (from US$180 billion in March) – an increase of 8.7% yoy.
<a href="https://www.propertyobserver.com.au/images/2017/06/19/6a.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/06/19/6a.png" width="700" height="473"> The confidence of exporters has remained relatively flat in recent months – despite the uptick in export values – with the new export orders measure in the NBS PMI survey at 50.7 points in May (up from 50.6 points previously) – below the near five year high of 51.0 points in March. Exports to China’s major trading partners continue to show diverging trends. There was strong growth for the United States – up by 11.7% yoy – and the European Union (9.7% yoy), while exports to other East Asian markets fell by 2.0% yoy. This result continues to be influenced by the historic distortion in Hong Kong-China trade data. Exports to non-Hong Kong Asia rose by 4.1% yoy in May – led by increases in trade with South Korea, Vietnam and Indonesia – while exports to Hong Kong fell by 10.6% yoy. So far this year, there has been a close correlation between the trade values reported by both China and Hong Kong customs – for the first time since 2010. In the first four months of 2017, the total difference between the two totalled RMB 1.9 million, compared with RMB 13.7 billion in the same period of 2016, RMB 12 billion in 2015 and RMB 24.6 billion in 2014. In part this discrepancy reflected capital outflows disguised as trade activity – through methods such as false invoicing – something that Chinese authorities have clamped down on more recently. That said, the overstated historical exports paints a more negative view on current trade data. While Chinese data suggests that exports to Hong Kong fell by over 15% yoy in April, Hong Kong customs data recorded an increase of 4.3% yoy.
Growth in retail sales was unchanged in May – with nominal sales rising by 10.7% yoy. The uptick in inflation (see below) during the month meant that real retail sales were slightly weaker – at around 9.4% yoy (down from 9.7% previously) – although this rate was stronger than the growth recorded across most of 2016.
<a href="https://www.propertyobserver.com.au/images/2017/06/19/7a.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/06/19/7a.png" width="700" height="483"> Despite real sales dipping below 10% last month, consumer confidence pushed higher in April – up to 113.4 points (the highest level recorded since June 2007). China’s headline inflation edged slightly higher in May – with the Consumer Price Index pushing up to 1.5% yoy (from 1.2% in April). Food prices have continued to contract – contributing to the recent weakness in inflation trends. Aggregate food prices fell by 1.6% yoy in May (compared with 3.5% in April and 4.4% in March). Prices for meat &amp; poultry, eggs and fresh vegetables fell year-on-year – albeit vegetables decline was smaller in May – at 6.3% yoy versus 22% in April. In contrast, the stronger trend for non-food prices has continued, with the index rising by 2.3% yoy in May (compared with 2.4% in April) – more than double the rate recorded a year ago. Fuel prices have been a major contributor, with double digit growth for the past six months (10.2% yoy in May).
<a href="https://www.propertyobserver.com.au/images/2017/06/19/7b.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/06/19/7b.png" width="700" height="500"> The acceleration in producer prices has already started to slow – with the producer price index increasing by 5.5% yoy in May (down from 6.4% previously). Commodity prices flowing through the industrial sector has a major influence – with growth in the RBA Index of Commodity Prices slowing to 29% yoy in May (compared with 36% in April). The overall index is below late 2016 peaks and has trended lower, meaning that producer price growth is likely to be less significant in coming months.
Credit issuance data was not available at the time of writing. Chinese monetary policy remained comparatively stable in across May and early June – with the 7 day Shibor trading in a narrow range of just under 9 basis points around the 2.9% mark. This represents around 40 basis points of tightening since the start of the year.
<a href="https://www.propertyobserver.com.au/images/2017/06/19/8.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/06/19/8.png" width="700" height="519"> The People’s Bank of China (PBoC) kept the rates for the Standing Lending Facility, Medium Term Lending Facility and 7 day reverse repos on hold during the past month, while it marginally increased liquidity in May (via open market operations) – by around RMB 20 billion (compared with RMB 210 billion in April). Our monetary policy views are unchanged – we believe that the PBoC has a tightening bias, but will be cautious in doing so, in an attempt to manage the risks associated with the country’s high corporate debt levels.
<a href="https://business.nab.com.au/author/gerard-burg/" target="_blank">Gerard Burg</a> is a Senior Economist - Asia at NAB Group Economics
</body></html>

jchancellor-FAypfDUnLy

China residential construction starts slower: Gerard Burg

<html><body>
2016 was a watershed moment for China’s commercial real estate market, heralding the next phase of its transformation into one of the major global destinations for property investors and developers, according to Real Capital Analytics.
While development remains a prominent feature of its property market, higher deal volumes for standing assets are a sign of the maturity and depth of China’s investment market.
The confidence of Chinese developers has risen yet again.
The historic peak of land sales by volume was 2013 and 2016 came close second with $417.5b (RMB 2.8t) transacted.
In line with the growing demand, land prices have spiked.
<a href="https://www.propertyobserver.com.au/images/2017/02/08/Screen%20Shot%202017-02-08%20at%201.27.05%20pm.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/02/08/Screen%20Shot%202017-02-08%20at%201.27.05%20pm.jpg" alt="">
The sharp price growth has been particularly obvious in Tier 1 cities with 19% growth since 2013.
Land values in Tier 1.5 and 2 cities have risen significantly too, by 61% and 49%, respectively.
China became the Asia Pacific region’s largest investment market for income-producing real estate for the first time, overtaking Japan and Australia.
This is a very prominent milestone in the development of the Chinese real estate market.
As highlighted earlier in the report, a total of $36.5b of real estate, excluding development sites, changed hands in China in 2016.
<a href="https://www.propertyobserver.com.au/images/2017/02/08/Screen%20Shot%202017-02-08%20at%201.27.13%20pm.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/02/08/Screen%20Shot%202017-02-08%20at%201.27.13%20pm.jpg" alt="">
China also claimed another record in 2016 as the Asia Pacific region’s top destination for foreign investors, who completed $10.2b of transactions there last year.
The value of transactions by foreign investors has doubled over the last five years.
The largest foreign investment in China, as well as the largest single asset office transaction in the world, was ARA AM’s purchase of Shanghai Century Link for $3.0b in Q4’16.
Another facet of China’s robust growth is the expansion of Chinese real estate investors and developers abroad.
RCA data shows that $34.7b was invested abroad by Chinese investors in 2016.
This is 245% above the 10-year average and 51% higher than 2015.
However, the strong growth does not come without its challenges.
<a href="https://www.propertyobserver.com.au/images/2017/02/08/Screen%20Shot%202017-02-08%20at%201.27.21%20pm.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/02/08/Screen%20Shot%202017-02-08%20at%201.27.21%20pm.jpg" alt="">
Speculation about new capital control rules squeezing the pipeline of Chinese outbound capital is causing some concern among market participants both in China and internationally.
It is reasonable to expect that Chinese outbound capital will slow down somewhat in 2017.
Still, investment and development activity within China’s borders is set to stride into 2017 and beyond.
</body></html>

China's real estate market continues to mature as confidence rises

<html><body><div class="page" title="Page 2">
<div class="layoutArea">
<div class="column">
GUEST OBSERVER
China records a comparatively strong finish to 2016, but Trump trade uncertainty adds downside risk to our moderate easing forecast for 2017.
China’s official national accounts data recorded a modest pickup in growth in Q4, with the economy expanding by 6.8% yoy (up from 6.7% recorded in each of the first three quarters). For the full year, growth was the slowest since 1990, but remains in line with a soft landing, as the growth model gradually shifts towards domestic consumption. 
<a href="https://www.propertyobserver.com.au/images/2017/01/24/Screen%20Shot%202017-01-24%20at%2012.39.51%20PM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/01/24/Screen%20Shot%202017-01-24%20at%2012.39.51%20PM.png" alt="">
NAB’s forecasts for Chinese economic growth are unchanged – at 6.5% in 2017 and 6.25% in 2018. That said, we continue to note risks to these forecasts – most recently the uncertainty regarding US trade policy under the Trump administration, the high levels of corporate sector debt and risks of price bubbles in real estate markets (despite recent cooling in price growth).
China’s industrial production growth was marginally softer in December – at 6.0% yoy (compared with 6.2% yoy in November) – essentially remaining around recent trend levels. Recent trends in PMI surveys point to improved conditions for manufacturers since the midpoint of 2015.
<a href="https://www.propertyobserver.com.au/images/2017/01/24/Screen%20Shot%202017-01-24%20at%2012.41.01%20PM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/01/24/Screen%20Shot%202017-01-24%20at%2012.41.01%20PM.png" alt="">
China’s fixed asset investment slowed considerably in December, despite real estate and manufacturing recording stronger growth. Construction activity is yet to show clear signs of slowing – with a fresh surge in construction starts in December – despite weakening house price and sales trends.
China’s trade surplus narrowed again in December, with import values recording a stronger month-on-month increase than exports. Commodity prices have surged in recent months – contributing to the rising trend in import values – with coal and iron ore prices remaining elevated. 
Export values fell in year-on-year terms, however the sizeable discrepancy between Hong Kong and Chinese trade data (due to unauthorised capital outflows disguised as trade activity in late 2015) makes underlying trends in trade flows extremely difficult to ascertain.
<a href="https://www.propertyobserver.com.au/images/2017/01/24/Screen%20Shot%202017-01-24%20at%2012.42.07%20PM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/01/24/Screen%20Shot%202017-01-24%20at%2012.42.07%20PM.png" alt="">
Growth in retail sales edged slightly higher in December, but stronger retail price inflation has kept real sales below 10% yoy.
China’s credit expanded strongly in 2016 – with new aggregate financing totalling RMB 17.7 trillion (an increase of almost 15% from 2015). This was the largest expansion on record (exceeding the previous peak in 2013). Managing the growth of China’s already considerable debt pile – comparable to higher debt advanced economy levels – remains a key challenge for Chinese authorities in 2017 and beyond. 
China’s official national accounts data recorded a modest pickup in growth in Q4, with the economy expanding by 6.8% yoy (up from 6.7% recorded in each of the first three quarters). This growth rate was slightly stronger than market expectations (at 6.7% in the Bloomberg survey).
<a href="https://www.propertyobserver.com.au/images/2017/01/24/Screen%20Shot%202017-01-24%20at%2012.43.10%20PM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/01/24/Screen%20Shot%202017-01-24%20at%2012.43.10%20PM.png" alt="">
For the full year, growth was the slowest since 1990, but remains in line with a soft landing, as the growth model gradually shifts towards domestic consumption.
The economic influence of the mid-year construction boom appears to have faded, with an acceleration in service sector growth across Q3 and Q4 – with services growing by 8.1% yoy (up from 7.8% in Q3). That said, property sales may have contributed to this trend – we will be looking closely at non-real estate and non-financial services data when this is released in the next few days.
NAB’s forecasts for Chinese economic growth are unchanged – we anticipate a slight easing in growth over the next two years, to average 6.5% in 2017 and 6.25% in 2018. That said, we continue to note risks to these forecasts – most recently the uncertainty regarding US trade policy under the Trump administration, the high levels of corporate sector debt and risks of price bubbles in real estate markets (despite recent cooling in price growth).
China’s industrial production growth was marginally softer in December – at 6.0% yoy (compared with 6.2% yoy in November) – essentially remaining around recent trend levels. This growth rate was below market expectations (at 6.2% yoy in the Bloomberg survey).
There was slower growth in construction related industrial products – with crude steel output rising by 3.2% yoy (down from 5.0% in November) and cement production falling by 1.2% yoy (compared with growth of 3.7% yoy previously). That said, at 67.2 million tonnes, crude steel output is not far below recent peaks.
Trends were more mixed in other industrial sectors. Motor vehicle output rose by 12.7% yoy (down from 17.8% yoy in November), electricity output was largely unchanged at 6.9%, and coal output was down 3.0% yoy. That said, coal production has risen considerably in recent months, following the easing of government imposed restrictions.
There was a slight divergence in trends in China’s main industrial surveys in December. The official NBS PMI survey was slightly softer, at 51.4 points (from 51.7 points in November) – albeit this level was the highest in over two years. In contrast, the Caixin Markit PMI pushed higher, to 51.9 points – the strongest reading since January 2013. Recent trends in these surveys point to improved conditions for manufacturers since the midpoint of 2015.
China’s fixed asset investment slowed considerably in December – with growth at 6.3% yoy (down from 8.3% yoy in November). The growth in state-owned enterprise investment – which surged across the middle of the year – slowed to 13.2% yoy (on a three month moving average basis) (down from 17.7% in November), while private sector investment has somewhat recovered from weak levels – at 5.0% yoy 3mma in December (from 4.3% previously).
Key sectors for fixed asset investment – such as real estate and manufacturing – recorded stronger investment growth in December – up by 10.0% yoy and 7.2% yoy respectively (on a three month moving average basis).
With real estate investment holding up, construction activity is yet to show clear signs of slowing – with a fresh surge in construction starts in December. Residential construction starts rose by 14.4% yoy (three month moving average) – up from -0.1% yoy in November, despite weakening house price and sales trends.
Official Chinese new house price data shows rose by 13.7% yoy nationally (compared with a peak of 14.0% yoy in November) – but just 0.6% month- on-month – the slowest rate of increase since February, and well below the 1.7% yoy peak across September and October. Growth in house sales has slowed – at 13.6% yoy 3mma in December (down from a recent peak of 38.8% in April) but the volume of sales has remained strong.
This suggests that it is still too early to know if policy restrictions introduced by a range of local governments are having a significant effect on the broader real estate sector – although recent price trends are encouraging. 
China’s trade surplus narrowed again in December, with import values recording a stronger month-on-month increase than exports. Overall, the surplus was US$40.8 billion (compared with US$44.2 billion in November).
China’s imports rose moderately in December – up by 3.1% yoy to US$168.6 billion (compared with US$149.3 billion in November). This result was in line with market expectations, with respondents to the Bloomberg survey anticipating a 3.0% yoy increase.
Commodity prices have surged in recent months – contributing to the rising trend in import values. The RBA Index of Commodity Prices rose by 42% yoy in December, with coal and iron ore prices remaining elevated. In contrast, import volumes rose comparatively modestly, up by 1.2% yoy (according to China Customs data).
Despite easing policy measures that restricted domestic coal production (which led to global coal prices falling from recent peaks), coal imports remained strong in December – up 52% yoy. We expect imports to decline in coming months, as domestic shipments pick up.
Other key commodities exhibited mixed trends. Crude oil imports rose by 9.6% yoy, while both iron ore and copper imports fell in December – down by 7.6% yoy and 7.7% yoy respectively. 
The value of China’s exports rose considerably month-on-month, to US$209.4 billion in December, but was well below the levels of a year earlier – down 6.1% yoy. This result was weaker than market expectations (at -4.0% in the Bloomberg survey), but may be subject to underlying data errors.
The confidence of exporters has remained relatively stable in recent months – with the new export order measure of the NBS PMI survey at 50.1 points (from 50.3 points in November) – a relatively neutral outcome.
<a href="https://www.propertyobserver.com.au/images/2017/01/24/Screen%20Shot%202017-01-24%20at%2012.44.10%20PM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/01/24/Screen%20Shot%202017-01-24%20at%2012.44.10%20PM.png" alt="">
Once again, the trends for exports by major trading partners were quite mixed – with steep falls in Asia contrasting with growth in the value of shipments to the United States. Exports to the US rose by 5.1% yoy (compared with 7.3% last month). Exports to the European Union fell by 4.7% yoy, while the value of exports to East Asia dropped by almost 14% yoy. 
Unauthorised capital outflows (disguised as trade flows) in late 2015 are distorting trade data. Exports to non-Hong Kong East Asia rose by 1.3% yoy in December, while exports to Hong Kong fell by over 26% yoy. The disparity between Hong Kong Customs and China Customs data was particularly stark in December 2015 – with Hong Kong reporting imports of just US$23.7 billion compared with China’s report exports of US$45.9 billion.
This discrepancy is larger than the year-on-year fall in exports for December 2016 – making underlying trends in trade flows extremely difficult to ascertain. 
Growth in retail sales edged slightly higher in December – increasing by 10.9% yoy (compared with 10.8% previously). Retail price inflation has been moving higher in recent months – resulting in weaker growth in real sales. Retail prices rose by 1.5% yoy – unchanged from last month – meaning that real retail sales growth was 9.3% yoy in December (up from 9.2% previously).
Consumer confidence was marginally weaker in December – at 108.4 points (down from 108.6 points) however this remains well within positive territory, and well above the neutral levels recorded in the early part of 2016.
China’s headline inflation was marginally softer in December – with the Consumer Price Index increasing by 2.1% yoy (compared with 2.3%% in November). 
Food price inflation was comparatively modest in December, with aggregate prices increasing by 2.4% yoy (down from 4.0% previously). This softer trend reflected much weaker price growth for fresh vegetables – at 2.6% yoy (compared with almost 16% last month). 
<a href="https://www.propertyobserver.com.au/images/2017/01/24/Screen%20Shot%202017-01-24%20at%2012.45.30%20PM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/01/24/Screen%20Shot%202017-01-24%20at%2012.45.30%20PM.png" alt="">
Non-food prices have continued to track higher in recent months, with prices rising by 2.0% yoy in December (up from 1.8% in November) – the strongest increase since November 2011. Fuel prices, utility costs and residence costs have all trended higher since the middle of the year.
Producer prices jumped in December – rising by 5.5% yoy (compared with 3.3% previously) – the strongest increase since September 2011. Commodity price trends had a major influence – with December 2015 marking the trough of the recent cycle. The RBA Index of Commodity Prices surged by 42% yoy in December (up from 27% in November). 
China’s credit expanded strongly in 2016 – with new aggregate financing totalling RMB 17.7 trillion (an increase of almost 15% from 2015). This was the largest expansion on record (exceeding the previous peak in 2013). The largest share of new credit was issued in the first half of the year.
Bank loans accounted for around two-thirds of China’s new credit in 2016 – totalling RMB 11.9 trillion. This level was around 11.8% larger than the previous year. Almost 60% of new bank credit was issued in the first half, while Chinese firms continued to pay down foreign denominated debt across the year.
Major components of the shadow banking sector – trust and entrusted loans – accounted for the second largest share of new credit at just over RMB 3.0 trillion. There was strong growth in shadow banking loans – particularly in the second half of the year – following on from two years of weaker activity due to regulatory pressures.
<a href="https://www.propertyobserver.com.au/images/2017/01/24/Screen%20Shot%202017-01-24%20at%2012.46.46%20PM.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/01/24/Screen%20Shot%202017-01-24%20at%2012.46.46%20PM.png" alt="">
Corporate bonds also accounted for a significant share of new credit – at RMB 3.0 trillion, however growth in new net corporate bond issuance was minimal – at just 2.1% in 2016. While growth in corporate bonds was strong in the first half of the year, second half issuance was considerably weaker year-on-year.
Managing the growth of China’s already considerable debt pile – comparable to higher debt advanced economy levels – remains a key challenge for the Chinese authorities in 2017 and beyond. 
</div>
<div class="column">
<div class="page" title="Page 3">
<div class="layoutArea">
<div class="column">
Gerard Burg is an economist, on Asia, at the National Australia Bank. 
</div>
</div>
</div>
 
</div>
</div>
</div></body></html>

Trump trade uncertainty adds downside risk to Chinese forecast: NAB's Gerard Burg

<html><body>
<img src="https://counter.theconversation.edu.au/content/69895/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
Foreign reserves at the People’s Bank of China (PBoC), China’s central bank, fell for the fifth consecutive month in November, dropping by US$69.1 billion to US$3.1 trillion. This is a level not seen since 2011, with reserves shrinking more than US$500 billion this year alone.
The Chinese government has moved to clamp down on capital flight, by introducing restrictions on foreign investment and curbing gold imports. But it could go further as the yuan stares down its worst year since 2005, making it harder for Chinese companies to borrow and repay debt. 
The decline in China’s foreign reserves is not a blip, but has roots that go deep and could affect the ability of Chinese consumers and companies to be our customers. So the introduction of currency controls, especially if China revisits the quotas for Chinese individuals to spend on foreign goods or travel, is something to watch. 
<h2>Why China is bleeding foreign exchange</h2>
The story goes back to August 2015, when China devalued the yuan in an apparent attempt to boost exports and growth. The devaluation probably would not have drawn so much attention if not for the fact that it appeared to trigger a huge outflow of capital from China. 
It all has to do with historical patterns of borrowing by Chinese companies (and some wealthy individuals). During the boom years of export-and-investment-led economic growth, investing in China offered a good return (especially compared to what was available in Western economies). China’s shadow banking system grew and flourished – offering even greater returns to Chinese firms and individuals. 
At the time it made sense to borrow at near-zero rates in the US and Europe, convert the money to yuan and invest in China. But the Chinese government brought this trade undone when it devalued the yuan back in August 2015. Borrowing in US dollars then selling those dollars to buy yuan-denominated assets no longer works. 
It is now happening in reverse – yuan-denominated assets are being sold at record rates to buy US dollars in order to pay back old loans before it becomes too late. This outward flow of yuan generates downward pressure on the Chinese currency, which recently fell to its lowest levels in years. This is creating a feedback loop. 
Before 2015, the PBoC bought dollars from Chinese companies that earned export income, printing lots of new yuan to do so. This money then circulated within the Chinese banking system and supplied the credit for China’s huge expansion. 
But now the PBoC is selling down its reserves of US dollars to prop up the yuan. This also places pressure on Chinese banks, and may force the PBoC to allow banks to free up more of their available capital. These deteriorating conditions in the banking sector, along with China’s fast-rising private-sector debt, increase the cost of capital and put further pressure on foreign exchange reserves. 
<h2>The economy isn’t helping</h2>
Further adding to the pressure since 2015 has been Chinese government encouragement for local companies to “go global”. Often such investments have been supported by subsidised loans or grants from China’s Export-Import Bank (China Exim Bank). At the same time, foreign investment into China has dwindled as labour and other costs have risen. 
Both of these phenomena have been part of the Chinese government’s overall strategy of internationalisation, while moving away from an economy dependent on exports and towards an economy based much more on services and domestic consumption. The problem is, however, that the hoped-for rise in domestic consumption has not eventuated at anything like the rate necessary. 
A crackdown on luxury consumption – seen as a sign of corruption by senior Communist Party members and officials – has further detracted from the desired growth in domestic consumption. 
<h2>What all this means for us</h2>
Even with the restrictions put in place, there isn’t a total yuan lockdown. It is hard to prevent the movement of yuan out of China through the offshore yuan market. The Chinese banking authorities have fewer ways of preventing such transfers, especially as the government pushes the yuan as an alternative to traditional US dollar settlements. 
But it’s likely China and its people will be much less able to afford direct purchases of Australian goods (iron ore, coal) and services (education, tourism) in the near future. This does not mean that Chinese demand for Australian goods will fall, but things might have to change. 
It means that instead of just “selling stuff” to China, Australia needs to engage with the Chinese economy – to understand what that economy really needs. Australia has know-how and technology in health care, education, agriculture and energy that China needs and wants.
With the limitations of Chinese currency and investment controls, Australia may need to be more generous in its willingness to transfer some of that technology and know-how. For its part, China has to be much better at ensuring that the intellectual property involved in such transfers and the returns from them are properly protected. This could be the start of something brand new.
Alice de Jonge is senior lecturer, International Law; Asian Business Law, Monash University and author for The Conversation. She can be contacted <a href="https://theconversation.com/profiles/alice-de-jonge-118840" target="_blank">here</a>.
</body></html>

Chinese Economy

Editor's Picks

Have something to contribute?

Developments

New apartments

New townhouses

News

Chinese Economy

Editor's Picks

Receive the latest news stories to your inbox

Have something to contribute?

Developments

New apartments

New townhouses

News