Property

What does Trump's win mean for China's housing market



The US election result has been finalised and Donald Trump becomes the US President. Given his controversial comments during the election campaign and his strong stand on issues related to China, sliding stock prices were seen in the mainland market recently. With Donald Trump as President, China may be affected by the adjustments of the US policies on finance, trade, diplomacy etc..

Donald Trump supported isolation on trade policy during the election campaign. He commented that China manipulates its currency, which leads to the huge trade deficit of the US, and that is the major reason for the weakened manufacturing industry and job losses in the US. He opposed to free trade, and said that he would raise import tax on Chinese goods significantly, which would definitely impose negative impact on China’s export. Yet, did Donald Trump think about whether Americans can afford the expensive “Made in the USA” goods if they do not use the goods made in China? Even if they can afford it, building the production line of each production procedure again locally will be extremely difficult. After Donald Trump won the election, Apple said they would consider moving their production of iPhone back to the US. Apart from surge in labour cost, Apple would need to face problems like shortage of local technicians and lack of local manufacturers of iPhone components, and therefore moving back the iPhone production may not be feasible. Donald Tramp’s plan on trade protection during the election campaign is unlikely to realise.

In fact, America, which is the largest developed economy in the world, benefits the most from global free trade, the benefits are not equally and effectively distributed among different groups in society though. Global free trade lets Americans enjoy more variety of goods at lower prices, and makes corporates’ costs lowered and profits higher. Trump is a businessman and he definitely knows the benefits of free trade, so the protectionism he advocated during election campaign might only be his strategy for getting more votes. Perhaps he may adjust trade policies a little bit in order to response to people supporting him, but large-scale policy on protectionism is unlikely, and hence China’s trade will unlikely to be affected significantly.

Regarding financial policy, Trump favoured comprehensive tax cut for bolstering the economy. But this will reduce the government’s incomes and increase budget deficit, and continue heightening the debts of the US. Given this, comprehensive tax cut may not be feasible. Trump also said he would repeal Obama’s health care reform; if it really happens, it will stimulate the US personal spending and China’s export can benefit too. Since the current market expects the Trump’s government will generally implement expansionary fiscal policy to stimulate economic growth, coupled with higher probability for the US Fed to hike rates in December, the US Dollar remains strong, and as a result, the depreciation of RMB to USD is even larger. Some people comment that this will lead to falling housing prices for China since currency depreciation will reduce investors’ asset return, resulting in change of capital flows. Although capital outflow happens in mainland due to currency depreciation, demand on houses is inelastic, particularly in large cities where demand exceeding supply, so it is unlikely for home prices to drop significantly. Currency depreciation may not create huge impact on China’s housing market in short term.

China faces uncertainties with Trump as the US President, while their relationship on cooperation and competition will not change in general. Despite the US President being the head of the country, legislation has to be approved by the House and the Senate, meaning that the political institution limits the President to make huge changes on policies in short term. So the Trump’s impact on the Chinese economy is not obvious, while the fundamentals of China’s housing market are also basically unchanged. Chinese government’s control measures have cooled down the market, resulting in falling transaction volume, home prices are still high though. The government should control the housing prices through effective measures, such as land policy, tax policy etc., in order to maintain stable economic development.