Big jump in RE prices, debt / GDP 120% — what could go wrong?
Niall Ferguson has been traveling in China:
China’s current growth rate is just under 8 percent. Industrial production is growing at an annual rate of 15 percent. Capital investment in dollar terms is now greater in China than in the U.S. And last year the value of initial public offerings on Chinese stock markets exceeded that of IPOs in New York by a factor of 3.5…
a third of the Chinese population now have wealth of between $10,000 and $100,000, compared with less than 7 percent of Indians. More than 17 million Chinese have wealth above $100,000. There are 800,000 millionaires here and 65 billionaires…
an astonishingly large part of what is going on today is investment in urban residential real estate, which is growing at more than 25 percent a year. The evidence was all around me as I drove through my sample of Chinese provinces. On the outskirts of every city I saw, there was a veritable forest of apartment blocks under construction.
These are the fruits of China’s own stimulus. When the Western economies first tanked in 2008–09, China’s communist rulers ordered the country’s banks to lend, lend, lend. The biggest borrowers were property developers and local governments.
With inflation above 6 percent and the stock market down, the new Chinese middle class has gotten in on the act. An unknowable proportion of these new apartments have been bought as investments by people who already own one or more. With new-property prices up about 20 percent in just two years, who can blame them?…
this looks a lot like a real-estate bubble — with Chinese characteristics. As for debt problems, Chinese bank loans were 97 percent of GDP in 2008. Now they’re at 120 percent.
As is increasingly said today, when something can’t go on forever, it won’t. Using more and more debt to keep up with the compound interest eventually must end.
August 18th, 2011 at 5:51 pm
Lucky for the Chinese that their real estate/financial bubble, as similar as it might appear to be to ours from 2007, is not accompanied by a declining worker to retiree support problem, as is true here. Sure they may have a problem in the not-far-off future (2050 or so) but as of right now the Chinese have 7.9 workers to retirees, and those people are paid relatively slim benefits. Not true here, on either count, as we have 4.7 workers to retirees, and those retirees are being paid chunkier benefits than Chinese retirees. Because our financial bubble bursting is accompanied by the debt bomb associated with paying retiree social costs, while the Chinese bubble (when it bursts) is not, the unwinding will have different consequences for the respective countries.
http://economix.blogs.nytimes.com/2011/04/13/the-burden-of-supporting-the-elderly/
August 19th, 2011 at 6:25 am
Or else…Not so fortunate…
But there are whole cities of empty apartment buildings, shops, warehouses, factories and public buildings where the all-knowing central planners have decreed them to be built, but no one wants to move there…they sit empty and deteriorate…
That bubble’s got to burst…and Katy’ bar the door when those newly wealthy Chinese find out their investmants are suddenly worth much less…if not worthless.
See http://www.dailymail.co.uk/news/article-1339536/Ghost-towns-China-Satellite-images-cities-lying-completely-deserted.html
Also, besides screwing up the male/female ratio badly, their population will start aging in large waves as well, and not in the far distant future. See:
http://www.atimes.com/atimes/China/HK01Ad01.html
August 19th, 2011 at 10:57 am
You can’t believe one single word or number that either a Chinese business says in its books or that Chinese government says in its books. The accepted culture practice is to lie about the books, even to one’s business partners.