The Biggest Crisis In China'S Economy Is Not Deflation.

The past May showed that China's economy began to show obvious deflation.

At present, inflation is out of date, and if the price of agricultural products falls slightly, China's economy will emerge from the crisis of domestic demand and overcapacity.

China's surface inflation and actual tightening show that the adjustment of economic structure and the expansion of new markets for domestic demand are imminent.

China can go back to relying on the old road of real estate to drink poison and quench thirst, and it can also lay a foundation for future development through years of painful economic contraction.

Where to go is directly related to China's development plan for decades to come.

Economic deflation is a fact.

As the two most important market in stimulating domestic demand in China's economy, the sales volume of the real estate market and auto market is shrinking month by month, and the volume of retaliation in the real estate market has fallen.

The volume of real estate turnover in May is not worth looking back. The volume of commercial housing in a second tier city is all down.

In April 14th, after the ten new deal came out in April 19th, -5, 2, and two weeks, the number of pactions in Beijing's first hand housing fell by 57.2%, and by the end of May, the number of pactions fell by 71.5%.

The situation in Shanghai is just as bad. According to the data released by the Shanghai Wei and the property market appraisal network, in May 2010, the new housing in the city of Shanghai (excluding commercial housing, including the relocation of supporting housing) accumulated a total area of only 300 thousand square meters, a sharp contraction of 70% compared with April.

The average price of new houses is 22338 yuan / square meter, which is 2.6% lower than that in April.

The turnover was 30% lower than the 08 year low.

This is not all. In May, the volume of commercial housing in Tianjin approached the historical low point. The volume of small apartment accounts for 70% below 90 square meters, and the volume of Nanjing black May fell by more than 70%, and the most moderate volume of Guangzhou fell 30.6%.

Although the sales volume of the automobile market has increased year by year, the ring data is declining steadily.

The blowout effect of the preferential policies has declined. From the end of 2009 to May 2010, the monthly sales of automobiles showed a downward trend.

The latest statistics of China Automotive Technology Research Center show that in May, 1 million 194 thousand and 700 cars sold in China, a decrease of 13.95% compared to the same period, an increase of 29.74% over the same period last year. In May, the vehicle output was 1 million 312 thousand and 700, with a decrease of 14.36% compared to the same period, an increase of 22.56% over the same period last year.

Although the figures are pretty good, companies are actually in a difficult time, not only because of price increases and inventory increases, but also because of the sharp increase in sales volume last year, sending wrong signals, triggering a wave of investment boom and exacerbating the overcapacity crisis.

At the beginning of this year, China's Ministry of industry and information technology warned, but it could not change the overall situation.

According to statistics, after the domestic automobile manufacturers announced the capacity plan, in 2010 has been completed and put into operation and will soon complete the new vehicle production capacity will exceed 5 million, plus the 13 million 500 thousand production in 2009, in 2010, the total domestic automobile production and sales volume plan is about 18 million vehicles.

And domestic institutions generally expect the growth of the auto market this year to be 15%, that is, to maintain the total sales volume of 15 million 500 thousand vehicles, and the surplus will be 2 million to 3 million vehicles.

Automobile manufacturers, like the real estate developers, have put their hopes on urbanization. However, the excessive use of cars and the gradual reduction of preferential measures have led to a big drop in the sales of small displacement vehicles. On the contrary, the sales of imported high-end cars are still good. This shows that China's automobile industry is similar to real estate, which shows obvious inequality between the rich and the poor.

The decline in real estate and auto sales has resulted in an overcapacity of the upstream and downstream industries.

The iron and steel industry, which is most influential, will soon enter the cold winter from the hot summer.

In June 4th, Baosteel, which has always been known as a weathervane, reduced its price for the first time this year, and the total sales of various steel products were 300-500 yuan / ton, and the sale of auto panels was down to 1000 yuan / ton.

The decline of real estate and automobiles has led to unsalable high-end and low-end steel products.

Zhejiang steel securities's May 25th steel weekly showed that the main steel thread steel for building materials has gradually approached the cost line.

As with cars, the stock of steel industry increased. In May, the inventory index of steel production was more than 60%, up more than 20 percentage points from 39.3% in April. According to the market monitoring of the Lange Iron and Steel Information Research Center, the social inventory of steel products in 29 key cities of the country was 16 million 143 thousand and 900 tons in May 28th, up 2.09% from the end of last month.

Unlike the automobile industry, the capacity expansion of the steel industry is more crazy.

Since the beginning of this year, China's crude steel output has been more than 50 million tons for 4 consecutive months. In April, domestic crude steel output was once again a record high.

In April, China's crude steel output was 55 million 403 thousand tons, an increase of 27% over the same period, an increase of 0.79% over the same period.

The external environment is pressing, and the volume of China's exports has not declined significantly. However, the export efficiency has declined, and many enterprises are unable to survive.

As the euro continues to fall, the real exchange rate of the RMB follows the US dollar appreciation in more than 20%.

In order to reverse the unfavorable situation, at the same time, because the euro is broken down, it has become irrational, according to sources told Reuters, hedge fund consulting firm Medley

Global Advisors6 released a report on 4 June, pointing out that China is buying euro assets to stabilize the euro exchange rate, prompting the euro to strengthen slightly against the US dollar, so that the euro will fall below the 1.20 mark of the dollar.

Money is also tightening. Although economists complain that China's central bank has been slow to raise interest rates and allow negative interest rates to distort prices, the reality is that banks' cash positions are unthinkable.

Because of tighter credit this year, the central bank kept issuing liquidity in the central bank, and the hole last year could not be filled, resulting in a sudden tightening of market liquidity in late May.

Unlike the previous 4 months, foreign exchange holdings, which constituted the main component of our basic currency, fell unexpectedly in May.

According to the central bank statistics, foreign exchange accounted for 1 trillion and 34 billion 69 million yuan in 1~4 month.

However, the decline in May, whether it is the one-year non deliverable forward contract or the rise in US bond yields, shows that funds are returning to the US dollar and gold to avoid risks.

Without foreign exchange, the Central Bank of China would not be able to make money even if it wanted to.

What the central bank can do is to reduce the issuance of central bank bills and reduce the return of funds, but it is not the same as the ability to create foreign currencies and credit. In May this year, the central bank invested 224 billion yuan, which still failed to ease the tension in interbank positions and the inter-bank lending rate rose sharply.

At present, the standard & Poor's index is hovering at 1000 points, while the Shanghai composite index is launching a sensitive 2500 point battle. Once the position is broken down, the loss of confidence is not limited, and it is very unfavorable for large enterprises with serious financial gap.

Speculators began to enter the property market and stock market. They bet that the government would relax credit and real estate regulation as before, and then turn around in the vicious circle of excess capacity, tight real economy and capital market bubble.

But speculators will pay a heavy price. Unlike the past, although the real economy is deflating, the government's response is to increase the supply of affordable housing, speed up the urbanization process through high-speed rail construction, and increase the consumption capacity of the middle and low income class through the national income doubling plan. This approach may not be able to receive short-term results, but it will benefit the long run.

Of course, China will pay a price for it. The economy is short term tightening, and the pformation is painful and long. Real estate and large cap stocks must be revalued.

On the surface, the economic policy of real estate does not seem to be so vigorous, and there is a big storm behind the calm.

(Note: This article only represents the author's point of view).