Japan's annual wage negotiations are yielding impressive progress, while Chinese home prices have risen for the first time in 18 months. The two trends indicate a positive shift for Asian economic indicators that until now stubbornly have refused to budge.
Major Japanese companies undergo yearly shuntō wage talks between management and their labor unions. Those talks are entering their final stages, and early indications are that manufacturers often are agreeing to meet the union demands.
For instance, electronics maker NEC (T:6701 and (NIPNF) ) said it will raise monthly base wages by ¥7,000 (US$53), as noted by the Japan Times, a move that with regular pay hikes and bonuses means the average annual salary will bump up by 5.5%.
Industrial conglomerates Hitachi (T:6501 and (HTHIY) ) and Toshiba (T:6502 and (TOSYY) ) also have agreed to a ¥7,000 increase in the monthly base wage. Hitachi said that hike is its biggest pay raise since 1998. Panasonic Holdings (T:6752 and (PCRFY) ), Fujitsu (T:6702 and (FJTSY) ) and Mitsubishi Electric (T:6503 and (MIELY) ) have followed suit with similar increases.
Carmaker Nissan Motor (T:7201 and (NSANY) ) is lifting its average monthly base wage by ¥12,000 (US$90), its largest increase since 2004, while also offering an annual bonus that equates to five and a half months of salary. Mitsubishi Heavy Industries (T:7011 and (MHVYF) ) said it was meeting the full demands of its union for the first time in 49 years, lifting monthly base salaries by ¥14,000 (US$105).
Japan's central bank, which next month will welcome a new governor for the first time in 10 years, said it is necessary to maintain its ultra-easy monetary policy until it sees persistent, structural growth in wages. Such growth has proved exceptionally difficult to achieve.
Inflation in Japan was running at 4.2% as of January, the latest figures available, which is the fastest pace of price increases since the oil crisis in 1981. A Reuters poll of economists released today indicates they expect inflation to have peaked, with the rate of increase declining to 3.1% in February. Consequently, it appears the coming wage increases will run ahead of the rate of inflation, producing a real increase in take-home pay.
In China, home prices across 70 major cities rose 0.3% in February, according to the National Bureau of Statistics, up from a flat 0.0% change in January. They had declined every month since September 2021 as buyers lost faith in a home market battered by Beijing's efforts to deleverage the housing sector. The total volume of sales also rose for the first time in 20 months.
The growth in prices came in the largest Tier 1 cities (up 0.23%), midsize Tier 2 cities (up 0.35%) and smaller Tier 3 regional cities (up 0.3%), indicating broad-based support. The Tier 3 cities in particular had suffered from the slowdown in sales, which have slowed to a crawl due to fears that developers may collapse after taking deposits on apartments that are yet to be built.
Home prices in the Tier 1 megacities (Beijing, Guangzhou, Shanghai and Shenzhen) tend to remain strong regardless of faith in the broader market. The central government has moved to link mortgage rates with local new-home prices and made other concessions mainly for first-time buyers. But the government so far has resisted major stimulus, wary of inflating the kind of credit bubble that has occurred in the past.
While the first gains in months are positive, financial service company Nomura said "sustainability remains unclear" for the rally in home prices.
"Beijing may have to do more to instill confidence in the property sector," it wrote.
The poor state of the property sector is undoubtedly one of the principal factors that led the Chinese government to deliver a cautious growth forecast for this year of "around 5.0%." That forecast is the lowest target it has ever set, but there are storm clouds on the horizon in the form of the hesitancy of Chinese buyers to lay down large sums on big-ticket items such as homes and cars. There's also concern about the strength of overseas demand for China's exports, with much of the West flirting with recession.
Retail sales also have been sliding in China. However, data released earlier this week show they rose for the January-February period, with the months being combined to account for the Lunar New Year effect. Year-on-year retail sales advanced 3.5% in that period, compared with a 1.8% decline in December. However, car sales slumped 9.4% as a lack of consumer confidence was exacerbated by the expiration at the end of 2022 of a purchase-tax reduction.
Chinese developers will take divergent paths in the year ahead, according to the state-owned Chinese investment bank CCB International. Only Greentown China Holdings HK:3900, Yuexiu Property HK:0123, China Resources Land (HK:1109 and (CRBJY) ) and China Vanke (HK:2202 and (CHVKY) ) are likely to record stable earnings for 2022, with most private developers recording sizable profit declines.
There are strong gains today for the shares of Chinese developers, particularly those with offshore listings in Hong Kong. Greentown shares are up 5.3% today, Yuexiu is up 4.0%, CR Land is up 2.6% and Vanke is up 1.4% after the positive numbers on sales. Country Garden (HK:2007 and (CTRYY) ), China's largest developer by sales and a private mass-market specialist, is leading the advance with a 7.7% gain.
CCB property analysts Lung Siufung and Elena Chen wrote that despite the market headwinds, "we believe the toughest patch for the operating environment is behind China's property sector thanks to muscular policy support that has succeeded in ring-fencing the high-quality developers while stabilizing homebuyer sentiment."
