Sep 2, 2017 | 12:57 GMT

For China, BRICS Is a Means to an End

(JIM BARBER/Shutterstock)

 

 

It can be difficult to separate the important from unimportant on any given day. Reflections mean to do exactly that — by thinking about what happened today, we can consider what might happen tomorrow.

 

Over the years, the group of countries known as BRICS has seen its members’ relationships develop and mutate with the shifting geopolitical climate. When a Goldman Sachs analyst came up with the premise of BRICS in 2001, he saw the group — made up of Brazil, Russia, India, China and later South Africa — as a gang of the world’s up-and-comers. These were countries, he reckoned, that it would be smart to invest in. After receiving the BRICS title, representatives from these nations went to town, organizing annual meetings and developing their own institutions. From the perspective of BRICS members, the best way to force themselves into the global governance conversation was by presenting a united front.

But today, the BRICS group is being driven increasingly by China, now the world’s second largest economy. When the country’s thriving east coast city of Xiamen hosts the annual BRICS summit on Sept. 3, the event will not only be of personal significance to Chinese president Xi Jinping, who was once Xiamen’s mayor, but also an opportunity for China to expand its global influence. And while Beijing’s economic heft will give it plenty of power to direct the course of this year’s meeting, there is another major BRICS player that is not so keen to let China have its way entirely.

Looking Out For Number One

The economic links between the BRICS members are not of equal strength: Brazil, Russia, India and South Africa are all much more closely tied to China than they are to one another. And the way that each member will engage with this year’s annual meeting can be traced to what it hopes to get out of China.

In this regard, Brazil and South Africa share similar ambitions. Both are struggling with economic slowdowns and see the meeting as an opportunity to garner investment from China as well as from the BRICS’ New Development Bank (NDB), which was designed as a counterpart to the World Bank. Indeed, Brazilian President Michel Temer arrived in China several days before this year’s summit in order to grease some wheels ahead of negotiations. He brought a new privatization plan to present to prospective Chinese investors, as well as a desire to strengthen the NDB to get more money flowing from it. Meanwhile, South Africa has also maintained strong support for the BRICS bank, as part of its larger goal of diversifying so it can rely less on Western-backed organizations.

For its part, Russia has become an increasingly enthusiastic partner to China across multiple fronts, as relations with Western nations sour and as Moscow’s global economic growth potential increasingly shifts toward Asia. Russia is currently building infrastructure to divert energy exports east. Meanwhile, trade with China is up 30 percent so far this year. Beijing and Moscow are further cooperating in areas such as security, intelligence and cyber-security, and in October they are expected to sign a joint space exploration agreement. Finally, the two are conveniently in lock-step on many foreign policy fronts, including dealings with North Korea and the United States. Ultimately, Russia sees China, and BRICS as a whole, as a way to show the developed world that it is not isolated.

Clashing Powers

If BRICS was a four-member group consisting of China, Brazil, South Africa and Russia, it would likely have little in the way of disagreement. But India, which has also seen major economic growth in recent years, is increasingly disrupting the party, at least as China sees it. After last year’s meeting, India emerged frustrated with Russia and China’s refusal to endorse its anti-terrorist message, largely aimed at Indian rival Pakistan.

And during the past year these tensions have grown, particularly with China, which has further strengthened its ties to Pakistan.

In May, India skipped the summit for China’s Belt and Road Initiative, which plans to build economic infrastructure in Pakistan. Then, India and Japan began working on a competing project, known as the Asia-Africa Growth Corridor. Issues between Beijing and New Delhi came to a head in June, when Indian and Chinese troops began a military standoff on a remote Himalayan plateau. After almost three months, the conflict came to an end on Aug. 28. But the last twelve months have certainly been the rockiest for Sino-Indian relations in at least five decades.

China’s Big Plans

When considering China’s wider global strategy, tension with India presents a complication. No longer just an up-and-comer, Beijing is now trying to establish itself on the world stage as a worthy rival to Washington and as a potential leader of a new global order. With this goal in its sights, China has launched several major initiatives, including its flagship Belt and Road project. For President Xi, China’s own international development bank, known as the Asian Infrastructure and Investment Bank, is a much higher priority than the NDB; it boasts a whopping 56 members, including global heavyweights such as the United Kingdom, Germany and France.

Meanwhile, China is also trying to present itself as a supporter of free trade following the United States’ withdrawal from the Trans-Pacific Partnership, a multilateral trade deal it crafted in part to contain Chinese influence. Beijing views the U.S. departure as an opportunity to expedite the launch of its own mega-bloc, the Regional Comprehensive Economic Partnership (RCEP), which it aims to finalize by end of the year. But the RCEP in its current form also includes India, and while there are other reasons for delayed trade negotiations — such as different priorities among the ASEAN countries and Japan, Australia and South Korea — India’s stubbornness has played a major role in the group’s dysfunction.

As it strives to enact its ambitious plans for BRICS, China faces additional headwinds from India. In March, Chinese Foreign Minister Wang Yi proposed a “BRICS Plus” model, which would open up membership to other interested developing countries. But India, sensing a Chinese plot to dilute its influence, demurred. And though China has invited Tajikistan, Egypt, Thailand, Mexico and Guinea to attend this year’s summit, it is on the understanding that it will be for one year only.

Fifteen years ago, both India and China were small enough that their differences could be overlooked. But now, the two have both reached sizes that cause them to clash, and as China looks to increase its global influence, India is in the way. But any Chinese attempt to remove India from BRICS would be difficult: The country is firmly enmeshed in the group’s institutions — the NDB’s president is, for example, Indian. And then Russia, which still has warm ties with India, would likely resist any efforts to remove New Delhi.

The BRICS countries were originally brought together by their potential for growth, but now the reality of that growth is causing problems among its members. As China strives to make BRICS a cog in its larger global strategy, the time is quickly arriving when the Beijing will have to assess how to manage India’s continued (and increasingly disruptive) presence in so many of its multilateral groups.

 South Korea’s fertility rate plunges to 7-year low

Wednesday, August 30, 2017 – 15:02

[SEOUL] South Korea’s fertility rate plunged to a seven-year low in 2016, official statistics showed Wednesday, with more women delaying marriage in the highly competitive, workaholic country.

The average number of babies a South Korean woman is expected to have in her lifetime dropped to 1.17 last year, down 5.4 per cent from 2015 and the lowest in the OECD group of advanced countries, Statistics Korea said.

The figures come as Asia’s fourth largest economy faces a worrying demographic shift with young, working-age South Koreans decreasing in numbers and the elderly population burgeoning.

Around 6.5 million out of the country’s 50 million population were 65 years or older in 2015, and in the next 10 years, one out of five South Koreans will be retired, according to a Statistics Korea report last year.

But soaring property prices and narrowing job prospects have caused many young South Korean women to put off marriage and having babies.

China Announces Start Date for Twice-a-Decade Party Reshuffle

Bloomberg News

‎August‎ ‎31‎, ‎2017‎ ‎4‎:‎17‎ ‎AM

• Ruling Communist Party expected to kick off congress Oct. 18
• Much of top leadership are slated for replacement at event

The Chinese Communist Party will likely begin its much-anticipated congress on Oct. 18, state media said, officially starting the clock on the country’s biggest political reshuffle since 2012.

The 19th Party Congress’s proposed start date was announced Thursday after a meeting of the party’s Politburo, according to the official Xinhua News Agency. While the schedule is technically a recommendation and requires approval from the broader Central Committee, that’s usually a formality.

The gathering of some 2,300 party delegates — held every five years in Beijing — will provide President Xi Jinping his biggest opportunity to reshuffle scores of top positions across the government and write his policies into the party’s guiding documents. As many as five of the seven officials on the Politburo’s elite Standing Committee — and roughly half of the broader Central Committee — could be replaced.

The Politburo said the congress came during a “critical period of the development of socialism with Chinese characteristics,” according to Xinhua.

The week-long event will determine Xi’s ability to implement policies such as overhauling the world’s largest military or reducing China’s $33 trillion debt pile. The pageantry begins with a speech by Xi detailing the party’s policies for the next five years and ends with curtain call by the new Standing Committee line-up.

Read more: What to Watch in China’s Big, Secret Party Powwow: QuickTake Q&A

The brief announcement suggested dates for the meeting, as well as dates for an earlier conclave of China’s outgoing leadership. It noted that preparations for the event were going smoothly. The congress date is expected to be confirmed at a plenary session of the Central Committee on Oct. 11.

While the congress is in theory a decision-making body, the event is heavily stage managed. Still, surprises are common in the run-up to the party congress as behind-the-scene fights spill into public view.

In July, the party chief for the southwestern city of Chongqing, Sun Zhengcai, was unexpectedly removed from his post over alleged disciplinary violations. The one-time presidential contender was replaced with a long-time Xi associate, Chen Miner.

— With assistance by Peter Martin

China used research mission to test trade route through Canada’s Northwest Passage

In this photo provided by China’s Xinhua News Agency, Chinese icebreaker Xuelong, or Snow Dragon, is harbored in Shanghai, after an 85-day scientific quest across the Arctic ocean, Thursday, Sept. 27, 2012. Xinhua News Agency says the Snow Dragon “accumulated a wealth of experience for Chinese ships going through the Northwest Passage in the future.”

PEI XIN/AP

ROBERT FIFE AND STEVEN CHASE

OTTAWA

China’s official government news agency says Beijing used a scientific icebreaker voyage through Canada’s Northwest Passage to test the viability of sailing Chinese cargo ships through the environmentally fragile route that links the Atlantic and Pacific oceans.

Xinhua News Agency, often used to deliver messages on behalf of the Chinese state, lauded the Sept. 6 completion of the first-ever Chinese voyage through the Arctic waterway, saying the Snow Dragon icebreaker “accumulated a wealth of experience for Chinese ships going through the Northwest Passage in the future.”

Beijing’s state news agency said the Arctic route through Canadian waters can reduce the delivery time for Chinese cargo ships by 20 per cent.

Related: Chinese ship making first voyage through Canada’s Northwest Passage

“It opened up a new sea lane for China,” the news agency said. “From Shanghai to New York, the traditional route that passes through the Panama Canal is 10,500 nautical miles, while the route that passes through the Northwest Passage is 8,600 nautical miles, which saves 7 days of time.”

Xinhua also reported that China sent six merchant ships through Russia’s Northeast Passage this summer as the world’s second-largest economy hopes to take advantage of melting Arctic sea ice to speed the delivery of goods to North America and European markets.

Canada demands that foreign vessels ask permission before sailing through the Northwest Passage. Foreign Affairs Minister Chrystia Freeland’s office said last week that Canada granted its approval on the basis that China was conducting scientific research. A team of Canadian scientists were also on board as well as a Canadian navigator.

A senior government official, who was not authorized to speak on the record, told The Globe and Mail that “China may say whatever it wants to a domestic audience [but] that does not mean it reflects the reality of what happened here.”

Adam Austen, the press secretary to Ms. Freeland, echoed the senior official’s viewpoint, saying the Snow Dragon mission was solely a “scientific expedition” and China’s desire to use the Northwest Passage for shipping is not a done deal.

“All commercial voyages through Canada’s territorial waters, including the Northwest Passage require an application,” Mr. Austen said. “While we permit commercial traffic through our domestic waters, we expect that ships comply with our strict laws on safety, security and the protection of the environment. All cases are evaluated on an individual basis.”

Arctic expert and professor Rob Huebert, who tracked the Snow Dragon’s voyage using satellite imagery, said he was surprised the Chinese were so blunt in revealing their clear intentions for the Northwest Passage.

“They are preparing for a very substantial increase in the amount of shipping. It is obvious this is going into the planning to a degree that we don’t see in Western shipping companies,” Prof. Huebert said. “They have given us clear notice this is going to happen.”

Prof. Huebert, who teaches at the University of Calgary’s Centre for Military and Strategic Studies, said he is not convinced the Canadian government is prepared to handle large-scale Chinese shipping through this waterway and to ensure China respects the Arctic Waters Pollution Prevention Act.

Environmentalists have expressed concern over the risks of increased ship traffic in the pristine Arctic, such as oil spills and sooty emissions.

“We need to get the Arctic patrol vessels built. We need to get the Coast Guard better funded and we need the facilities for better surveillance and enforcement capability,” Prof Huebert said.

For some years, state-owned Cosco – which is China’s largest shipping group – has been exploring the potential of the Arctic as a new and reliable global trade route.

Using the Arctic would allow Chinese cargo ships to provide faster delivery without having to worry about monsoons in the Indian Ocean, armed pirates on other routes or paying fees to pass through the Suez or Panama canals. In early July, Chinese President Xi Jinping and Russian Prime Minister Dmitry Medvedev agreed to explore co-operation on the northern sea route to build a “Silk Road on Ice.”

Chinese state media have called the Northwest Passage a “golden waterway” for future trade; 90 per cent of China’s exports are by ship. China has no Arctic territory, but has been attempting to play a larger role in the region and gained observer status at the Arctic Council in 2013.

Despite concerns about the effect of increased shipping traffic on the fragile Arctic environment, there is little that Canada can do to prevent countries from using the Northwest Passage as a trade route, according to University of British Columbia Professor Michael Byers.

However, Prof. Byers said the fact that Beijing sought Canada’s approval to enter the Arctic waters strengthens Ottawa’s sovereignty claims to the Northwest Passage.

“If anything, Canada’s legal position has been bolstered by the fact that the Chinese were so willing to work with us. They waited a whole week before they got the letter [of Canadian government approval] before entering Canadian waters,” Mr. Byers said. “Every time another country works with us, they are at least implicitly recognizing that we are the state in control, that we have rights in the Northwest Passage. So this voyage is actually a good thing from the perspective of Canadian sovereignty.”

Prof. Byers acknowledged though that it is in China’s interest to seek Canadian approval because it strengthens Beijing’s claims to the Hainan Strait, which, as with the Northwest Passage, the United States considers international waters.

“That is actually the reason why China is respecting us in terms of not challenging our position [on the Northwest Passage]. They are not challenging our position because if they challenged our position, they would be weakening their position in the high Hainan Strait,” he said.

The Hainan Strait is an important shipping route connecting the South China Sea to the Gulf of Tonkin and one that China claims as internal waters.

Canada claims sovereignty over the Northwest Passage based on historic title – a status conveyed by the Canadian Inuit’s usage of those waters. This claim has long been challenged by the United States, which considers the passage an international strait through which Americans are entitled transit rights.

Nonetheless, the United States does notify Canada when its vessels are passing through the channel.

Prof. Huebert said it will be important for Canada to ensure that Chinese shipping companies request Canadian authorization before they venture into the Northwest Passage.

“If [China] bring containers in, the first one will be important in that they follow our procedures for requesting permission,” he said. “If they start coming in and get sloppy and they start not asking for consent, then the Americans will quite rightly say you are not enforcing it and therefore it is an international straight. And that is the real danger.”

China’s Arctic plans fit with a broader effort to create new trade shortcuts. Last year, Beijing send the first container train from eastern China to Iran – a land journey 30 days shorter than by water.

China Cities Face Surging Funding Costs on Default Concerns

Bloomberg News

September 6, 2017, 3:00 PM MDTSeptember 7, 2017, 3:19 AM MDT

• Hanrui sold 270-day bond at 6.8%, matching record-high yield
• Investors’ faith in implicit guarantee is weakening: Yaozhi

A Look at China’s Looming Debt and Credit Problems

A Look at China’s Looming Debt and Credit Problems

China’s cities, towns and counties are facing surging borrowing costs as investors anticipate landmark defaults.

A local government financing vehicle in the country’s east was recently forced to pay a coupon on a bond that matched a record. Average financing costs in credit markets for the units that finance roads, bridges and sewers have jumped, with yields for some borrowers surging the most in six years.

Chinese investors are gradually accepting a new reality: the government is reducing support for the local funding units as it tries to curb their massive borrowings. In August, a builder of social welfare housing in the southern province of Hunan said it will change from a government financing arm to a regular state-owned company, fueling concern it will lose financial support from regional authorities. At least 40 other LGFVs across China announced similar plans from 2015.

“Investors’ faith in the government’s implicit guarantee for LGFVs is weakening,” said Wang Ming, chief operating officer in Shanghai at Shanghai Yaozhi Asset Management Co. “The pricing of LGFV bonds is more and more reflecting their own credit fundamentals, which aren’t good. Default risks of weaker LGFV bonds are rising.”

The Chinese government has stepped up efforts to curb local government debt. In an April-dated statement, the finance ministry said local governments must not provide any guarantees to back corporate or individual borrowings, and urged them to push forward the conversion of LGFVs into regular state-owned enterprises.

Those broader concerns spelled higher debt costs recently for Jiangsu Hanrui Investment Holding Co., based in Zhenjiang in the Yangtze River delta. The builder of an economic development zone in the city in the eastern province of Jiangsu sold 1 billion yuan ($153 million) of 270-day bills last week to yield 6.8 percent. That matched the highest coupon on record for similar-maturity LGFV notes.

In secondary trading, notes from the nation’s local funding units are also losing luster. The average yield on seven-year AA- rated LGFV bonds has risen 108 basis points this year, set for the sharpest increase since 2011. At 6.45 percent, it’s near a two-year high marked in June.

China has allowed no LGFV bond to default, while state-owned enterprises have missed payments on at least 23 bonds, according to data compiled by Bloomberg.

Despite the shift in the market, there are still some investors who believe the government won’t allow defaults among the financing vehicles that support construction throughout the nation.

“If any LGFV runs into repayment trouble, local government won’t stand aside,” said Qiu Xinhong, a Shenzhen-based money manager at First State Cinda Fund Management Co. “Otherwise, it would cause systemic risk.”

Read more: Chinese regulators are wary about LGFV’s offshore debt sales

But there are warning signs. Just as the market reassesses local credit risks, lower-rated LGFVs face rising bond repayments next quarter. Financing arms must repay a record 21 billion yuan of notes rated AA or lower in the period, the highest amount on record, according to Bloomberg-compiled data.

Hanrui illustrates the bigger trend of the local units piling on borrowing. It has sold 8.5 billion yuan this year in the onshore market, almost double all of 2016, the data show. All of the securities sold mature in a year or less.

China’s Golden Credit Rating International Co. rated Hanrui investment grade at AA+, while Fitch Ratings gave the issuer a junk score of BB+. An operator at Hanrui declined to transfer Bloomberg’s call seeking a comment on the coupon rate.

“It’s hard to define LGFVs’ risk profile under current circumstances,” said Chen Qi, chief strategist at private fund management company Shanghai Silver Leaf Investment Co. “The government is trying to let LGFVs operate as regular enterprises but LGFVs still have connections with the government in many aspects so it can’t totally withdraw the support.”

— With assistance by Judy Chen

September 20 2017 Random Lengths International

China’s environmental reforms reaching wood products

The Chinese government’s multi-year environmental reform program aimed at curbing air and water pollution that have reached “crisis” levels has engulfed the country’s softwood lumber industry in early 2017, impacting hundreds of smaller sawmills, remanufacturing plants, and end-users.

China’s 13th five-year plan, unveiled in early 2016, included legislation that tightens China’s air pollution emission restrictions significantly. Observers call the plan the “most ambitious” environmental control effort in the country’s history. Some studies indicate air pollution kills 1.1 million people in China each year.

Initially, the Chinese Ministry of Environmental Protection focused its Industrial Environmental Clean-Up Policy heavily on the country’s steel and coal industries.

Earlier this year, the government announced the closure or cancellation of 103 coal-fi red power plants, according to nationalgeographic.com. The government also announced plans to trim China’s steel production capacity to reduce that industry’s impact on air quality.

Car emission standards set to take effect in 2020 will be comparable to Europe and the U.S. The government’s wide range of environmental control programs extends to cities offering incentives for residents to give up coal stoves and furnaces at home.

The government’s efforts to reduce air pollution emissions grew more visible in the softwood lumber industry earlier this year. In recent months, government officials have temporarily or permanently closed numerous wood processing facilities in various regions within China.

In many cases, the government required those companies to install modern equipment designed to reduce the plant’s sawdust emissions into the air. A large percentage of those businesses have remained idle, largely because they are unable to afford the required emissions control equipment.

Some North American-based Western S-P-F exporters estimated that the shutdowns have affected hundreds of factories in China. An accurate count, however, has proven elusive.

Traders say some furniture makers and remanufacturing plants that have been closed recently have resumed operations at new locations in cities or provinces where emissions regulations are less strict.

Further, leaders often order temporary factory closures in wood products and other industries before high-profile events such as international conferences to improve air quality for visitors. Officials also frequently close factories for weeks in November and December to ensure the cities they represent won’t exceed annual pollution limits.

Some softwood lumber traders expect China’s environmental reforms to encompass a growing number of wood processing plants in the near term. A few exporters say a number of remanufacturing plants they sell to have received notices from government inspectors that they need to upgrade emissions control equipment or face potential shutdowns.

A few exporters estimated that roughly 70% of sawmills and remanufacturing plants in the city of Taicang, which is near Shanghai in the Jiangsu province, have received notification from the Ministry of Environmental Protection that upgrades to their emissions control equipment will be necessary.

Abrupt plant closures associated with the environmental reform program have occasionally caused cancelled orders or shipping disruptions, but have had minimal impact on the overall fl ow of lumber from North America to China.

However, traders note that prices for finished wood products may climb within China, as mills and remanufacturers pass along rising costs associated with the stricter emissions control standards.

Markets Are About to Find Out What China’s Leadership Reshuffle Means

Bloomberg News

August 31, 2017, 4:25 AM MDT August 31, 2017, 3:45 PM MDT

For most of the year, there’s been an oft-repeated refrain among China-watchers. Whispered in private meetings with clients or loudly spoken by confident brokers, it goes something like this: “Don’t worry about the economy or markets in 2017 — Beijing won’t let anything bad happen ahead of the Communist Party Congress.”

Much less clear is what happens after the gathering, a once-in-five years conclave now scheduled to convene on Oct. 18 in Beijing. Now that the dates — a secret until late Thursday — are known, the narrative will need to evolve, with what takes place at the meeting of some 2,300 delegates key to determining China’s course over the next five years.

“There are two big concerns among overseas investors who are interested in China — the yuan and the uncertainties around the party congress,” said Han Tongli, chief investment officer at DeepBlue Global Investment Ltd. in Hong Kong, which oversees $200 million. “Once the dust has settled and the uncertainties have gone post-congress, investors will re-evaluate market pricing.”

China’s policy makers have stressed the need for stability and order in financial markets in the lead-up to what will be the 19th congress, even as they persist with a campaign against leverage endorsed by the country’s top leaders. Investors have taken comfort in the strengthened yuan and buoyant stocks, betting officials will act swiftly to quash any signs of speculation or upheaval that could distract from the party’s message of prosperity and control.

Swings Afterward

But the ‘Congress Put’ keeping markets calm won’t last, with the gathering a vehicle to dispense key messages about the party’s vision for China’s future. That could unleash a flurry of policy and regulatory activity once the agenda has been set and the delegates have returned home. Markets typically see volatility in the wake of party congresses, according to Goldman Sachs Group Inc.

President Xi Jinping, who also serves as general secretary of the party, has been continuously solidifying his power base since his ascension at the 2012 congress, and a key metric for China watchers will be how successful he is in influencing key personnel appointments.

The second critical aspect of the meeting will be the work report delivered on the first day, which sets the priorities for government policy in China for the next half decade. The importance of this document “can’t be stressed enough,” say analysts at Trivium, a research group co-founded by former Conference Board economist Andrew Polk.

“We are genuinely curious to see what happens here,” they wrote in a preview of the gathering. “Xi has changed tack several times and the debate over economic policy is still raging with no obvious conclusion — stay tuned.”

While the Communist Party pledged early in Xi’s term to give markets a “decisive” role in shaping the economy, his leadership has seen the party’s control deepened in a broad range of areas, from state-owned enterprises to social media and the military.

Yuan Shock

Xi’s first term has seen periods of tumult in the markets, with individual investors encouraged to buy into stocks that went from boom to bust in a matter of weeks in mid-2015. Then came the shock devaluation of the yuan, which rattled global markets and exacerbated depreciation pressures on the currency just as China was trying to internationalize it.

Since then, policy makers have been trying to insulate the yuan, first using reserves, then stricter capital controls and monetary tightening to stem its drop. Donald Trump’s election, and his threat to label China a currency manipulator, brought with it a fresh imperative to stem weakness, and the yuan has chartered a steady, strengthening course through 2017.

This means the work report will be keenly watched for the tone it adopts on market reforms.

“The guidance won’t come in the form of specific policies, but represent the party consensus on longer-term strategies going forward,” said Aidan Yao, a senior economist at AXA Investment Asia Ltd. in Hong Kong.

Another key point is language surrounding China’s growth objectives. For market watchers, it’s key that the party strike the right balance. Abandoning an explicit target for the economy without some new pledge to sustain a steady pace of expansion could cast doubt over the outlook for a continuation of the 6-percent-plus pace of gross domestic product gains. Still, too aggressive a target may fuel worries about excessive debt.

Similarly, observers will be watching for language on reining in financial risks, where again a balance between pledging to avoid a buildup in leverage while averting a contraction in credit that damages growth may be needed.

On personnel, the reshuffled membership of the Communist Party’s top body, the standing committee of the Politburo, will be all-important. Among the key markers to watch:

• Whether Xi ally Wang Qishan, who has led the anti-corruption drive, stays for another five-year term, despite being beyond the informal retirement age of 68. That could indicate whether Xi stays in power beyond 2022, breaking a recent precedent for party leaders to step down after a decade.
• How many allies Xi gets on the seven-member panel, and whether the group shrinks — giving Xi greater influence.
• Whether a clear potential successor is appointed to the panel. In recent history, the mid-term party congress typically sees the leader-in-waiting established, as Xi himself was in 2007. One man to watch is Chen Miner, a Xi protégé recently elevated to party boss of megapolis Chongqing.

Also key is whether People’s Bank of China Governor Zhou Xiaochuan stays on, along with Premier Li Keqiang. Li is considered a proponent of market reforms, but has been marginalized by Xi as the president set up competing bodies overseeing economic and financial policy.

The extent to which the looming party congress has influenced the economy and markets was on display Thursday, when China’s monthly purchasing manager index gauge of manufacturing advanced for August. With activity among larger enterprises outpacing that for smaller ones, it might have signaled “the outsized role played by government-affiliated enterprises in sustaining economic conditions during the crucial period” before the gathering, Morgan Stanley analysts wrote in a note.

Economic conditions will probably remain solid until the congress is done, keeping Morgan Stanley “optimistic” on the direction of the offshore yuan and the prospects for higher bond yields.

But time is running out on that narrative.

“The past five years has seen growth largely driven by spending and an increase in leverage,” said DeepBlue Global’s Han. “It’s understandable that Xi spent the first five years focusing on creating an environment that discouraged corruption, but now the market is looking for more.”

— With assistance by Chris Anstey, and Helen Sun

What the Surging Yuan Means for China’s Economy

Bloomberg News

September 17, 2017, 10:00 AM MDT September 18, 2017, 5:07 AM MDT

• Currency gains give officials room to ease curbs: StanChart
• PBOC may take incremental steps toward freer yuan: Goldman

The yuan’s surge this year is proving a double-edged sword, risking hurting the nation’s exports even while boosting the chances of currency and capital control reforms.

The exchange rate’s 5.7 percent advance this year has crushed depreciation pressures, allowing policy makers the freedom to loosen capital outflow controls that may impact the currency. The People’s Bank of China took a step in that direction on Sept. 11, scrapping a reserve requirement on the trading of foreign-exchange forwards that had made it expensive to short the yuan. Some of the potential lifting of curbs may help companies by making their overseas investment efforts easier.

Here’s a look at the implications of the yuan’s strength:

Export Risk

Overseas shipments are typically first in the firing line when a currency appreciates strongly, with official data showing a slowdown in China’s exports in the last two months as the yuan climbed 2.9 percent.

Profit margins may shrink unless the companies get payments in yuan, especially if they haven’t hedged enough, said Iris Pang, an economist at ING Groep NV in Hong Kong. She recommends increased hedging, adding that the yuan will become more volatile.

Any protracted yuan gains will make the authorities uncomfortable because exports are an important economic growth driver, according to MK Tang, senior China economist at Goldman Sachs Group Inc. in Hong Kong. Export growth has contributed to a 1 percentage point improvement in China’s gross domestic product this year, he added.

Capital Controls

The yuan’s strength gives the authorities an opportunity to ease capital curbs, some of which hurt China’s economy, said Ding Shuang, chief China economist at Standard Chartered Plc in Hong Kong. The potential steps include making it easier for companies to move money overseas and easing restrictions on foreign acquisitions by domestic firms. The nation toughened capital outflow controls last year in an effort to arrest depreciation pressures on the yuan, which plummeted 6.5 percent against the dollar in its biggest drop since 1994.

Wider Impact

The yuan’s strength has spread cheer to the nation’s equities market, with the benchmark Shanghai Composite Index extending a three-month advance to rise to the highest level since January 2016. Bonds have steadied as well after a three-quarter selloff as foreigners tripled their holdings of banks’ short-term debt and increased their ownership of sovereign bonds in August.

Reforms, Deleveraging

Chinese policy makers will likely take incremental steps to move the yuan closer to a free float, such as by allowing more two-way volatility and reducing intervention, said Goldman’s Tang.

A freer yuan will serve the nation’s economy well because resources will be allocated in a more efficient way without government controls, said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore. A steady currency market will also allow China more room to focus on its drive to reduce excessive borrowing, which will benefit the economy in the long term, he said.

Click here to read more about China’s deleveraging drive.

— With assistance by Tian Chen, and Miao Han

Canadian lumber steps into furniture market

On August 25th 2017, Canada Wood China (CW China) signed a strategic cooperation MOU with Sichuan Guodong Construction Holding Co., Ltd (Sichuan Guodong) on “jointly promote the applications of Canadian qualified lumber on furniture markets in China” in Chengdu. Eric Wong, managing director of CW China and Mr. Xie Suming, general manager of Sichuan Guodong signed the MOU on behalf of each side.

This MOU signing indicates that Sichuan Guodong will participate in CW China’s promotion on Canadian wood in furniture application with its over 20-year rich experience in furniture and door-sets. Read more

Ding-dongIn Hong Kong, a row over land rights reflects a bitter divide

Why the Communist Party sides with the landlords

 Print edition | China

Aug 10th 2017| HONG KONG

HONG KONG’S serried ranks of high-rises, stuffed with small flats, are the epitome of modern city living. Yet more than half of the 1,100-square-km territory is green: outside the dense urban centres lie countryside and mountainous jungle dotted with ancient villages. Many are still inhabited by the clans who founded them hundreds of years ago. Families gather in ancestral halls bearing the names of their forefathers, who are buried in traditional horseshoe-shaped graves nearby, nestled at the spots on the hillsides with the most auspicious feng shui. By dint of this historical connection, some villagers receive a valuable and controversial privilege: the right to buy land at a discount from the government and to build a house on it, of a size most Hong Kongers would envy. The system has become a topic of fierce debate in the territory—a proxy war, in effect, between pro-democracy activists and the most powerful defender of the privileges: China’s ruling Communist Party.

The party seized power in China 68 years ago on the back of a rural rebellion fuelled by hatred of landlords. In Hong Kong, however, the twists and turns of history have left it on the other side; the territory’s rural landowners are a pillar of the party’s support. They have a seat reserved for them in Hong Kong’s quasi-parliament, the Legislative Council (or Legco). They also have 26 guaranteed seats in the 1,200-member committee that elects Hong Kong’s leader. In a territory bitterly divided between democrats and the party’s backers, the party needs any friends it can get.

In recent months pro-democracy politicians have been mounting a vocal campaign against the rural landowners, whose privileges they consider deeply unfair. At issue is what is known, ironically enough, as the “small-house policy”. This was introduced in 1972, a quarter-century before Britain handed Hong Kong back to China. It grants male villagers the right to build a house of up to three storeys on a plot of land in their ancestral village. If they have no land themselves, they can buy it from the government at a discount.

The lucky few

It is a policy wrapped in layers of unfairness. First, there is the obvious discrimination between men and women: the policy is exempt from Hong Kong’s sex-discrimination laws. Then there is a further refinement: it applies only to “indigenous” men who can trace their ancestry through the male line to occupants of their village at the time when Britain took control (Hong Kongers often refer to these privileges as “ding rights”; ding means an adult male). Therein lies a third layer of inequity: the policy applies only to inhabitants of villages in the New Territories, a largely rural district of Hong Kong, much of which borders on Guangdong province. Britain acquired this area on lease from China in 1898, 56 years after it had seized the island of Hong Kong and nearly 40 years after it had expanded its control into Kowloon. Villagers in the rest of Hong Kong (there are very few of them) do not get the same deal.

By Hong Kong’s standards, the “small houses” are palatial. They typically have a floor area of 2,100 square feet (195 square metres). The most common type of apartment built by developers in recent years, in contrast, is the “micro-home”, of 215 square feet or less. To many urban Hong Kongers, who struggle to buy even such minuscule dwellings in what is one of the most unaffordable cities in the world, the small-house policy seems grossly unjust. Worse, it is often abused by villagers who make fortunes by illegally selling their ding rights to developers or by selling their houses, which can go for millions of dollars.

It is not clear how many people have unexercised ding rights. One recent study put the number at 90,000; an earlier one at 240,000. Recipients argue that the scheme is less generous than most Hong Kongers suppose. As homes can only be built in areas designated by the government, many villagers own land they are not allowed to build on. Some villages are running out of land for construction. It is not clear if the government will expand the amount available. What is more, most villages are not connected to the sewage system; some have no water or roads. Applications to build a small house can take years to be approved, and if their owners want to sell within five years they must pay a penalty to the government.

Few outside the villages are sympathetic. The New Territories are now home to half of Hong Kong’s 7m people. Most live in small apartments in new towns; many live in illegally subdivided flats or wait years for public housing. One of the leaders of the campaign against the villagers’ economic and political privileges is Eddie Chu, a pro-democracy legislator and founder of a group called the Land Justice League. Mr Chu accuses rural landowners of hiring thugs to intimidate unfriendly politicians and adversaries in land disputes. Last year he received death threats after exposing hitherto unpublicised meetings between officials and landowners that had apparently resulted in a public-housing development being scaled back to avoid encroaching on villagers’ land.

But Mr Chu is up against a powerful force: the Heung Yee Kuk, an advisory body to the government that holds considerable sway in rural politics. It is this body, usually known as the Kuk (meaning “council”), that represents the landowners in Legco and the election committee. The Kuk’s leader, Kenneth Lau, inherited the position from his father in 2015. Lau Wong-fat, known to all as “Uncle Fat”, was a rural patriarch who ran the Kuk for 35 years; he died in July. Mr Lau speaks proudly of how his ancestors resisted the British in 1898. But he has a lot to thank them for. Fifty years ago Hong Kong was shaken by violent pro-Communist protests against British rule. The colonial authorities created ding rights to reward the Kuk for its support and to win backing from villagers for plans to build new towns in rural areas.

To ensure the Kuk’s loyalty to the post-colonial government, China all but endorsed ding rights when it drew up a mini-constitution for the territory, known as the Basic Law. Article 40 calls for the protection of “the lawful traditional rights and interests of the indigenous inhabitants” of the New Territories. Loyal the Kuk certainly is. During a recent visit by China’s president, Xi Jinping, the Kuk flew 100,000 Chinese and Hong Kong flags in his honour in villages across the New Territories—even as supporters of greater democracy took to the streets in protest.

Mr Chu, the campaigner, says the government is unwilling to do battle with the rural landowners. Carrie Lam, who was sworn in by Mr Xi as Hong Kong’s leader on July 1st, has experience of the risks of fighting them. In 2011, when Mrs Lam was head of the civil service, rural groups burned effigies of her after she suggested cracking down on illegal extensions that villagers had been adding to their houses. The Kuk seems determined to fight for ding rights too. Junius Ho, a legislator and member of the Kuk, can trace his family back 32 generations. He agrees that the small-house policy is contentious, but only because “people have sour grapes”. Mr Ho accuses other politicians of “stirring up conflict” over the issue. His advice to the government is to process villagers’ applications for ding-rights land more quickly.

Market: Japan

Reconstruction Projects Facility Growth of Non-Residential Construction in Tohoku

On September 22nd Canada Wood visited the new Selco Home non-residential demonstration office project in Sendai with Catriona Armstrong of NRCan and Joyce Wagenaar of FII. Selco Home opened The “City Forest” 3 storey demonstration office in August to show prospective clients the beauty and performance of wood in commercial, non-residential uses.

Traditionally a 2×4 single family home builder, Selco’s first non-residential project was the Canada Wood Yuriage Public Market Reconstruction Project in Natori City. The public market project was a catalyst for Selco to establish a new team targeting business development in the non-housing sector. Since then, Selco Home has completed a number of non-residential projects including offices, restaurants, retail outlets, multi-use public facilities, community centres, clinics, kindergartens and elderly care facilities. Read more

Superpower India to Replace China as Growth Engine

India’s economy has youth on its side.  https://www.youtube.com/watch?v=JeV2bPU6-Ag

By

Michael Heath

September 17, 2017, 4:29 PM MDT

India is poised to emerge as an economic superpower, driven in part by its young population, while China and the Asian Tigers age rapidly, according to Deloitte LLP.

The number of people aged 65 and over in Asia will climb from 365 million today to more than half a billion in 2027, accounting for 60 percent of that age group globally by 2030, Deloitte said in a report Monday. In contrast, India will drive the third great wave of Asia’s growth – following Japan and China — with a potential workforce set to climb from 885 million to 1.08 billion people in the next 20 years and hold above that for half a century.

India will account for more than half of the increase in Asia’s workforce in the coming decade, but this isn’t just a story of more workers: these new workers will be much better trained and educated than the existing Indian workforce,’’  said Anis Chakravarty, economist at Deloitte India. “There will be rising economic potential coming alongside that, thanks to an increased share of women in the workforce, as well as an increased ability and interest in working for longer. The consequences for businesses are huge.’’

While the looming ‘Indian summer’ will last decades, it isn’t the only Asian economy set to surge. Indonesia and the Philippines also have relatively young populations, suggesting they’ll experience similar growth, says Deloitte. But the rise of India isn’t set in stone: if the right frameworks are not in place to sustain and promote growth, the burgeoning population could be faced with unemployment and become ripe for social unrest.

Deloitte names the countries that face the biggest challenges from the impact of ageing on growth as China, Hong Kong, Taiwan, Korea, Singapore, Thailand and New Zealand. For Australia, the report says the impact will likely outstrip that of Japan, which has already been through decades of the challenges of getting older. But there are some advantages Down Under.

Rare among rich nations, Australia has a track record of welcoming migrants to our shores,” said Ian Thatcher, deputy managing partner at Deloitte Asia Pacific.  “That leaves us less at risk of an ageing-related slowdown in the decades ahead.’’

Japan’s experience shows there are opportunities from ageing, too. Demand has risen in sectors such as nursing, consumer goods for the elderly, age-appropriate housing and social infrastructure, as well as asset management and insurance.

But Asia will need to adjust to cope with a forecast 1 billion people aged 65 and over by 2050. This will require:

• Raising retirement ages: Encouraging this could help growth in nations at the forefront of ageing impacts.
• More women in the workforce: A direct lever that ageing nations can pull to boost their growth potential.
• Taking in migrants: Accepting young, high-skilled migrants can help ward off ageing impacts on growth.
• Boosting productivity: Education and re-training to bolster growth opportunities offered by new technologies.

— With assistance by Garfield Clinton Reynolds

 

Australia: TPP Trade Talks Sail on Without the United States

Stratfor 2017)

 

The 11 remaining countries of the Trans-Pacific Partnership (TPP) are moving forward after the departure of the United States early this year. They recently concluded three-day negotiations in Sydney, meant to map a way forward and broadly address certain issues that will be discussed more thoroughly at the group’s September meeting in Japan. And while the Sydney meeting was seen as a success, there is still some uncertainty over how the group will progress without the United States.

Japan, Australia and New Zealand — all enthusiastic to see progress made — served facilitating roles in the talks, while Mexico and Canada arrived with their own amendments, which they hoped to see made quickly. The TPP could have the power to set standards in other trade deals, and the two North American countries were aiming to reshape the agreement in a way that will benefit them in current NAFTA renegotiations.

In spite of their differences, all TPP members — Japan, Australia, Brunei, New Zealand, Peru, Mexico, Canada, Chile, Malaysia, Singapore and Vietnam — unanimously agreed to suspend a clause on pharmaceutical data exclusivity, which prevents new versions of a drug from entering the market until a certain amount of time has passed. The now-absent United States pushed hard for the inclusion of the clause, and resounding agreement to ditch it may be further echoed in a planned patent-requirement freeze.

With access to huge U.S. markets no longer an incentive, it’s not surprising that the remaining countries have become a little less ambitious in their commitments. Meanwhile, this type of watering down of trade terms could also have domestic repercussions for individual countries. For example, Vietnam’s reform progress was partly driven by TPP requirements, and if they are made less stringent, the country’s reform momentum could also suffer.

Most of the TPP members remain on board with the tariffs and import caps negotiated in the original deal, but they have yet to reach conclusions about investment rules, copyright protection and other topics. The countries will decide which specific terms to suspend at their next meeting, and are aiming to reach an agreement at the Asia-Pacific Economic Cooperation in Hanoi in November.

Overall, negotiations seem to be progressing well (unlike ongoing Regional Comprehensive Economic Partnership talks, which have seen China struggling to get its Asian neighbors to align). But ultimately, if this new TPP agreement is finalized, it will likely be a shallower deal than originally envisioned, composed of smaller economies and making less of a global impact.

And there are still sizable hurdles on the way to a final deal. For example, if the TPP-skeptic New Zealand First Party comes into power in New Zealand’s Sep. 23 election, the country could withdraw from negotiations. And a recent public consultation process in Canada revealed strong negative sentiment toward TPP among some Canadians. Any additional departures from the group could slow down or even derail progress. But if they are avoided, the accomplishments of this recent summit indicate that a final deal on a smaller, shallower TPP appears to be coming together.

After TPP, Vietnam’s Quest for Trade

(Stratfor)

Vietnam has embarked on one of the most active quests for free trade in the Pacific Rim. From Hanoi’s perspective, deals like the Trans-Pacific Partnership (TPP) are perfect for attracting foreign investment and buyers for its exports, both of which are crucial to ensuring its success amid heightened regional competition and its gradual reform of the Vietnamese economy. (Currently, inefficient state-run enterprises are responsible for much of the country’s economic output.) Despite the deal’s impending failure, Hanoi has pursued a fairly liberal trade agenda that has left it with a cushion of other free trade agreements to fall back on, including with the Eurasian Economic Union and European Union.

Nevertheless, the two blocs set lofty standards that would require Hanoi to undertake extensive regulatory overhauls and politically sensitive labor union reforms that could directly threaten the operations of its bloated state-owned enterprises. That the Vietnamese government is willing to do so in spite of the risks to its own position in power is a testament to its desire to seek out trade partners other than China and, by extension, limit Beijing’s influence over Vietnam. But putting its plan into practice has been no easy feat. The TPP or a free trade agreement with the European Union would expand Vietnam’s access to other markets and foreign partners, eventually reducing its dependence on Chinese products. However, in the short term, these deals will offer little relief.

Vietnam’s deepening integration with the rest of the world has made it vulnerable to volatility in global markets while squeezing its domestic manufacturers as well. After years of generous foreign investment, investor pledges have tapered off in recent months, a sign of the challenges to come for Vietnamese exports in the wake of the TPP’s demise. Meanwhile, growing protectionism in the United States and European Union — Vietnam’s largest export markets — bode ill for its economic prospects. The timing of those developments could not be worse for Hanoi, which is in the midst of a painful effort to restructure its economy that could put pressure on some of Vietnam’s most important industries, including agriculture, steel and electronic components.

The country’s manufacturing supply chains, moreover, are far from complete. Vietnam must import many of the raw materials it uses to generate its exports. Without a long-term strategy to develop these industries and boost its productivity, Vietnam is vulnerable to external disruptions to its supplies. All of these issues have been aggravated by Vietnam’s persistent macroeconomic problems, including its fragile banking system, an excessive number of non-performing loans, underdeveloped regulations and lagging public enterprise reforms, as well as continued volatility in global commodity prices and financial markets. Facing such difficulties, Hanoi will continue its subtle pursuits to keep its options in the region open.

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Section Highlights

• India likely will manage to implement only part of the critical Goods and Services Tax in the third quarter because of disagreements between the federal and state governments as well as onboarding challenges for businesses across the country.
• Social and economic disruptions caused by Prime Minister Narendra Modi’s nationwide ban on cattle sales will give the opposition a pretext to keep the government from passing labor reform legislation during the Parliament’s monsoon session.
• Modi will continue pursuing a diverse foreign policy this quarter, visiting Israel, hosting Japanese Prime Minister Shinzo Abe and dispatching forces to participate in the Malabar naval exercises.
• Fighting in Afghanistan will intensify as the United States sends more troops to bolster the Afghan National Security Forces in their war against the Taliban.
• Pakistan will try to subvert Zakir Musa’s Hizbul Mujahideen breakaway faction to prevent an anti-Pakistani transnational jihadist movement from taking root in the disputed territory of Kashmir.

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Realizing India’s Tax Reforms

After three years in office, Indian Prime Minister Narendra Modi has centralized power enough to give his Bharatiya Janata Party (BJP) the leeway to pursue long-awaited reforms. Modi’s administration achieved a victory on that front in the first quarter, when Parliament passed the Goods and Services Tax bill. But the task of introducing the changes prescribed in the law still lies ahead of the prime minister and ruling party. While India will likely manage to implement, at least in part, the sweeping tax reform by the government’s July 1 deadline, lingering disagreements between state leaders and their national counterparts in New Delhi over tax classification will frustrate progress. In fact, the states of West Bengal and Tamil Nadu, two of the strongest objectors to the tax scheme, resisted adopting local versions of the legislation until recently. Their success putting the laws into practice will serve as a test case for the overall efficacy of the measures in India. In addition, complications bringing the businesses in India’s vast informal economy into compliance with the laws, as well as obstacles to getting the plan’s information technology infrastructure system up and running, will hold up the implementation process.

In part because of the fitful progress of the tax reform, India’s business climate is unlikely to improve in the third quarter as the central government hoped it would. India’s $2 trillion economy will keep struggling to attract foreign investment into its manufacturing sector, the focus of Modi’s “Make in India” initiative. Of course, in a democracy of nearly 1.3 billion people, change is a gradual process, and the tax reform package, even if only partially implemented, marks a landmark achievement for India. The measures’ implementation marks the first of many steps toward unifying the country’s fragmented economy, boosting interstate trade, streamlining supply chains and increasing gross domestic product growth.

Housing Affordability Fires Up New Zealand’s Voters

 

By

Tracy Withers

August 29, 2017, 11:00 AM MDT August 29, 2017, 10:17 PM MDT

• Nation’s home ownership has fallen to lowest level since 1951
• Ardern’s resurgent opposition party makes housing key issue

When Olivia Hollywood began hunting for her first house in Wellington early last year, she was optimistic that half a million New Zealand dollars ($362,000) would get her on the property ladder.

After eight months attending packed viewings and watching homes auctioned at vastly inflated prices, Hollywood and her partner abandoned their search. Since then, average prices in the Wellington area have gained another 13 percent to exceed NZ$607,000. The couple is among thousands of Kiwis for whom home ownership is looking increasingly distant.

“It was frustrating for us because we did expect it was going to be quite easy,” said Hollywood, 24. “We decided it was just too crazy for us and we’d rather sit tight for a couple of years and save up a bit more.”

Jacinda Ardern

Photographer: Mark Coote/Bloomberg

As ownership falls to the lowest since 1951, housing affordability is firing up voters ahead of New Zealand’s general election on Sept. 23. The government is under attack for failing to respond to price surges that have forced many to ditch their property dreams. New Labour leader Jacinda Ardern has made housing a key issue, helping restore the main opposition party in opinion polls and leaving the election too close to call.

“The government’s response has been too slow and inadequate for many because they’ve seen house prices rising very fast,” said Raymond Miller, professor of politics at Auckland University. “Some voters might well have a feeling of being let down by what they see as indifference to their plight. It’s the government’s Achilles’ heel.”

Prices across New Zealand have risen 34 percent the past three years, fanned by record immigration, historically low interest rates and a supply shortage. That’s seen the portion of owner-occupied properties slump to 63 percent of the nation’s 1.8 million homes in the second quarter, down from a peak of 74 percent in the early 1990s.

In response, the ruling National Party has made more land available for development and increased deposit grants to first-home buyers. But it’s done little to curb immigration that’s added 201,000 to the population the past three years, while a policy of taxing profits on investment properties sold within two years of purchase has been criticized as too mild.

More Aggressive

Labour is pledging a more aggressive solution. It’s promising to ban property sales to non-resident foreigners who it says have fanned price pressures, and will extend the period in which investors will be subject to tax to five years. It wants to curb immigration, and plans to build 100,000 homes over 10 years and sell them at affordable prices.

“We’re going to get the government back into the business of building large numbers of affordable homes for first-home buyers like governments used to in this country,” Labour’s housing spokesman Phil Twyford said in a Television New Zealand interview. “The government has had nine years and they’ve just tinkered around the edges.”

Read about the resurgence of Labour under Jacinda Ardern

Many New Zealanders are motivated to save for a home where they can bring up a family just as their parents and grandparents did. National will be wary that disillusioned home-buyers may turn their back on the party, thwarting its efforts to win a rare fourth term.

No party has won an outright majority since the South Pacific nation introduced proportional representation in 1996. National had 44 percent support in a poll published Aug. 17. Labour had 37 percent but could get across the line with the additional support of ally the Green Party, which had 4 percent, and New Zealand First, which got 10 percent.

Prime Minister Bill English is optimistic that housing affordability issues are on the wane. Home-loan interest rates are near 50-year lows and rising household incomes make mortgage payments more manageable. House-price inflation is slowing and a report this month predicted 196,500 homes will be built in the six years through 2022.

Bill English

Photographer: Brendon O’Hagan/Bloomberg

“We have a flat to falling market, with all those houses coming into the market, and rising incomes,” English told the New Zealand Herald last week. “Housing affordability is going to get better.”

His outlook isn’t guaranteed. Both National and Labour’s ambitions to build more homes may be derailed by skill shortages and capacity constraints in the construction industry. Building consents fell for a second straight month in July, data released Wednesday showed.

The Treasury Department last week cut its forecasts for residential investment, and now projects a contraction in 2018, citing a lack of workers and bankers’ reluctance to lend to developers. It also expects the Reserve Bank to raise interest rates from mid-2018.

House prices rose just 1.6 percent in the three months through July as central bank-imposed lending curbs, particularly on investors, started to bite. In the Auckland area, home to a third of New Zealand’s 4.7 million people, prices have fallen slightly since last year, but still average more than NZ$1 million.

“There’s still a fundamental supply-demand mismatch,” said Zoe Wallis, chief economist at Wellington-based Kiwibank. “People are viewing the price drop as a great opportunity to get into the market. We’re not expecting to see a large outright fall in Auckland prices because of that.”

That’s cold comfort for Olivia Hollywood in Wellington, who is waiting for the local market to allow her another shot. Prices in the capital have risen 5.7 percent so far this year after surging 21 percent in 2016.

“I think the market is coming back,” she said. “We are hoping it will drop a little bit more.”