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Uh, so actually, we're seeing uh sales decline uh accelerating, and also uh investment in the property sector uh is declining at a faster rate. Uh, so I think overall, you know, despite having some hope for recovery for this year, in the first half, I think, you know, the second half is looking more or less the same or sometimes even worse than before.
But the market reaction is very different from say, two years ago. Uh, why do you think that is? That the market is just trying to ignore and just focus on the stock market because maybe they are trained with the property market mess? Yeah, I think people are getting used to it. But most importantly, uh, if you look at the Chinese economy these days, uh, there's a dichotomy that is going on, right? So one part is totally unrelated to the property sector, you know, which is high-end manufacturing, AI, robotic movements, and all that, and that part is doing exceedingly well and is actually taking market share uh from the rest of the world. I think, you know, anything related to the property sector, however, is doing really poorly. But this part, fortunately, is uh uh becoming a smaller contributor to the overall economic growth. So I think, as a result, um, you know, people are starting to overlook uh the weakness in the property sector.
And staying on the property market mess. Do you think that it's maybe the market is more comfortable with it? Maybe people are getting used to it, as you say, or some level of belief that the policymakers are not going to let it just really implode to the level that it actually affects other parts of the economy or the stock market that is running in a very, that's right, robust manner? That's right. Well, I think, you know, the property sort of matters has been ongoing for >> almost five years now, right? So I think we peaked in 2021, and ever since that, if you, if you look at the uh property price in the tier one cities is down 30%. In many of the tier two cities, it's around 40, 50%, sometimes even more. And despite that, you know, there's still new projects being built, right? So, for example, Veni has close to 800 projects that are being built, and and the two other guys, two big guys, actually have over a thousand uh projects being built, right? So the inventory overhang is very significant, it's very difficult to get rid of. I think late last year, the government actually had, you know, come out and say, well, you know, we're going to launch a a 300 billion yuan uh bailout fund, able to take out, you know, many of the unsold inventories. But you're talking about a sector that is still selling probably 7 trillion to 8 trillion yuan a year, right? So 300 billion is not going to do much. So I think, as a result, you know, things just keep dragging on. And I think recently, you know, specifically for Vanki, uh, is because, you know, its short-term cash position is dwindling, so it's >> not nearly enough to cover its short-term liability. And more importantly, I think uh Shenzhen Metro, which is now the largest holder for Veni, is asking for collateral for its loan to Veni. All right. So people seeing it as a weakness that is developing for this developer.
So how do you see this getting resolved? I mean, the company uh asking for a delay in coupon payments and so on. The government is not really actively trying to work things out. You say in your note that the only way out is government bailout. The Chinese government is not really, it's not really in in its nature to do that. >> Um, yeah, because um, the mentality really is that, you know, you don't want to develop moral hazards for these people. So in the past couple of years, because of aggressive expansion, you know, many of the developers, you know, basically engaged in some sort of illicit activities, you know, for example, uh, misappropriate people's deposits for new buildings, all right, so use it for other purposes, etc., etc. And now many of them are being investigated, uh, uh, recently, for example, Venkey's senior management is being investigated by authorities as well. Yeah. >> So I think, um, you know, for a bailout, uh, that is still not happening is really because of this moral hazard, uh, uh, uh mentality that could be developed, you know, once you have a bailout. And also, you know, when you want to bail out this sector, you know, just now I mentioned that, right? So we're still selling 8 trillion yuan a year, right? Which is a very humongous amount in an economy that is 120 trillion yuan in in GDP, right? So the bailout has to be like 10 trillion in size, uh, for for it to be effective, right? So it's a very large sum we're talking about.
So investors will just have to go through this very painful process and uh >> yeah, I think it's a very drawn out, very, very drawn out process, right? So I think if you look at the Japanese experience, it's been like 20 years since they walked out of the shadow. I think for the, you know, the way China is handling its uh property sector, [snorts] it's seemingly it's going that way.
Do you think the public in China, the general general public, the sentiment has changed looking at how the property market sort of blew up here? That it was all about buying properties and maybe that's changing and there is really no alternative? Remember Tina, that's right, in markets, and they are just buying up stocks, and that can explain the rally in equities. >> Um, well, I think, yeah, so even though there's a a secular downtrend in the sector, right? So you still have technical rebounds. And also this year, Um, I think the PBOC uh has been pumping liquidity into the system. And property used to be, you know, one of the most sensitive sectors to interest rate changes. And therefore, you know, people are looking for technical rebounds in this sector. But, you know, you're you're doing a technical rebound on the way down, right? So I think for for many asset allocators, uh, the Chinese property, uh, a technical rebound should be sort of a way to exit, right? So you sell on sell on rebound rather than buy on dips.
Okay, and does that somehow explain the rally to a degree in stock markets as well? That maybe people exit if they can in the property market, they don't put fresh uh capital into the property, and then they're looking at, well, I mean, they're not going to go for a bond market at this point, right? >> Um, a bond has been in the bull market for like three, four years, right? So it's, it's actually the best performing asset class in in China for the past couple of years until this year. >> Uh, so this year, you know, people are reallocating their cash uh uh and and capital to the other part of the of the economy. And also, you know, for uh for the property sector investments, you're right, you know, if China continues to sink >> investments in into the property sector, then I think I actually think that it's bad news for the economy, you know, in the sense that, you know, you you're storing good money after bad, right? So right now, you know, we're we're actually investing in high-end manufacturing and many other more productive areas, uh, to to prop up economic growth, uh, instead of, you know, investing in the property sector that is still lingering in a secular downtrend.