2016 ECONOMIC PARADOX IN THE CHINESE ECONOMY

IS ENTERTAINMENT SAVING REAL ESTATE?

“China has achieved extraordinary economic growth in the last Thirty years. Now, China’s long-term future requires an ambitious restructuring of its economy, developing its domestic consumption over government investment” is an abstract of an early blog.
Well, the start of 2016 is illustrating the transition: real estate in Hong Kong and Box Office of the Spring Festival is the theme of this week Blog.

Ten days ago after the Spring Festival a land auction in Hong Kong sent a freezing wind of panic on the real estate market with pricing in Hong Kong's New Territories crashing at less than HK $ 20,000 level for residential land so, equivalent to less than 17,000 RMB per square meter. This level of prices is not only lower than the previous auctions but substantially lower than Beijing and Shanghai price level even below the recent sale prices in Nanjing.
Land prices plummeted at the same time precipitating Hong Kong property prices into another dive. Is there a Hong Kong's imminent meltdown in real estate? Land prices in Hong Kong plunged to levels found in second-tier cities in mainland China.

Collapsing property prices precipitated several prominent real estate conglomerates into major market value losses such as Cheung Kong Infrastructure Holdings controlled by prominent businessman Li Ka-Shing. The residential market in Hong Kong is also seeing a major falls in house prices.
In January 2016, the Hong Kong property market hit a 25-year low; after property prices plunged for months and it looks like the 2015 decline will continue and may accelerate in 2016. A majority of the analysts predict that Hong Kong property prices may fall another 30%.

Meanwhile, Hong Kong's big real estate public conglomerate are losing value and this explain why pro-active group such as Li Ka-Shing Cheung Kong Infrastructure reorganized in June 2015 and merged all real estate operations into one single entity coupled with non-real estate assets and why Li Ka-Shing is bidding on jewel property outside of China such as its recent bid on London City airport. In spite of all these efforts the market capitalization of its conglomerate fell more than US$ 18 billion in the past few months.

Another large group Hang Lung properties managing major commercial real estate around China saw a drop its share value of about 50% in one year. In the past six months, Hong Kong's major property developers: Sun Hung Kai Properties, Henderson land and new world development, Wharf Holdings, fell sharply as well.

This is certainly raising a lot of “red” flags for China economy but at the same time good news is coming from the entertainment industry.

Over the Spring Festival holiday this year box-office reached records number with about 3.61 billion yuan or about half a billion US dollars a 51% increase over the 2015 numbers that were already 48% higher than 2014. The number of film-goers totaled about 1.26 billion throughout the year, a year-on-year increase of 51.08 percent.

Three Chinese films contributed to 93.5 percent of the box office in the five days [February 8 to 13] of the Spring Festival. The three blockbusters were Stephen Chow's Mermaid, Cheang Pou-soi's The Monkey King 2 and Wong Jing's The Man from Macao III.

Although most film-industry watchers predicted China would hit new highs during the Spring Festival holiday, few of them have expected the figures to be so astounding.

According to Authorities this 2016 Chinese New Year holiday is the biggest in the industry's history. Considering that Spring Festival holiday represents roughly 4 to 5 percent of the annual film receipts, some observers say China could overtake the United States as the world's top movie market in the current Year of the Monkey. More conservative analysts predict that it may happen only in 2017.

Interesting enough, all three films were directed by Hong Kong directors so there is some irony here, who knows Entertainment may save Real Estate in Hong Kong!

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Libra6 Management is present in Shanghai and operates in Cleantech, Media, Infrastructure and Real Estate.
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