China’s Bubble About To Burst?

The world booms on with stock markets, gold and oil all sitting happily near their recent highs, looking pucker and ready to head on up. The Greek crisis smoulders on but is not enough by itself to spoil the show. A Euro holed below the water-line by a Greek default is hardly going to encourage lenders to lend at low rates of interest when the fear of sovereign default becomes more real. But until it happens, Greece has not succeeded in projecting real fear onto the investment agenda.

The situation seems to be holding out for a greater shock, more worthy of bringing an end to the greatest global asset price inflation in history. The testosterone-fueled bull charge wants to see some real financial carnage on a far greater scale before it is willing to hang up its boots.

The Greek crisis is, in any case, already old hat, and what’s Greece in any case? A mere 3% of the eurozone.

No, the hedge funds leveraging risks, making fast profits, want a crisis, that measures up in scale to the boom, which has sent asset prices spiralling ever on upwards since the year 2000, making all in the game into multi-millionaires.

These all-conquering markets and hedge fund heroes are not going to allow a mere bit of Greek chicanery to knock them back. Oh no.

But have no fear. A crisis on an altogether greater scale seems to be heading our way. The Greek crisis rocked the boat with a quake on the Richter Scale of 3, but it is now China that could be about to send a real tsunami wave spilling over the shoreline and smashing the over-exposed edifice of international finance, shocking the world.

Property prices in Shanghai last month fell 10%. That sounded like a 10% annual decline in reports, but it wasn’t. Prices actually fell 10% in a month.

A few China experts are beginning to worry as to what might be going to happen next. The government is desperately trying to reign in an unstoppable boom, with restrictions on lending, but with 60% of the Chinese economy now depending on construction, the effects of stopping the property boom will rapidly have knock-on effects economy-wide, and worldwide.

See Bloomberg.

The Tap Blog is a collective of like-minded researchers and writers who’ve joined forces to distribute information and voice opinions avoided by the world’s media.
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7 Responses to “China’s Bubble About To Burst?”

  1. Stuart Fairney says:

    Where do you get your 60% figure from? Surely the chinese is export based

  2. tapestry says:

    The Bloomberg link quotes Chanos.

  3. Anonymous says:

    According to Bloomberg, the figures were even more amazing. 10% down in one week, not one month or even one year. Ha! ha! that should give the speculators a good dose of the shits. However, as you observe, the government is desperate to kill this boom and the figures may simply be products of the Chinese propagander department.

    A David

  4. tapestry says:

    A David, that’s an interesting theory. There was something odd about the report, no detail and no human input, just a sentence. You might be right.

    But the denial of a runaway boom becomes harder to deny, as Hong Kongers are doing.

    The money men want to sell out before Mr Average realises what’s happening.

    This smells of crash whichever interpretation one gives.

  5. Casperodj says:

    @Dengxiao

    I’m not denying there might be a property bubble in several cities, especially in coastal cities like Shenzhen. Although, I’ve been in Shenzhen many times over the past years, while living in Guangdong, and I’ve seen vacancies but never buildings that were 80% empty, unless they were under construction. So we would like to see some proof for claims like that.

    My point was that I still believe the Chinese government and Chinese property markets are more resilient when it comes to trouble. There may or may not be property bubbles all across the mainland, but that does not mean that the government can’t handle or ease those.
    Similar criticism has been used the past years when looking at the Chinese stock markets and the economy as a whole; everyone claimed the economy was overheated and would come to a complete halt once even a minor crisis would hit it. Yet the global financial crisis of the past 2 years did not manage to sweep the Chinese economy off its feet. Therefore, it is odd to now presume the Chinese property markets would come crashing down because prices drop in Shanghai for one month or some buildings in Shenzhen seem empty.

    You do raise an important point on China’s recent lending strategies though. This easy lending may well have been a crucial factor in overcoming the financial crisis, but is a poor strategy none the less. However, I’ve also been reading lately that this trend is being reversed, which might be a sign the Chinese government now sees the deep and dark waters it’s sailing in.

  6. Dengxiao says:

    The Chinese government in Beijing cannot cool down the overheated real estate market, since 60% of their whole economy depends on construction now ! They are trapped in their own ponzi scheme. Chinese GDP growth is created by the government and does not reflect any real market demand. Believe me I am living in China already for 7 years and actually predicting a real eastate bubble since 5 years. The city of Shenzhen where I am living has a unbelievable vacancy rate. No I am not looking at statistics, I am driving my car every evening along new buildings which are by at least 80% empty because no light and therefore no people in there !!!!!! The only ones who are making a big profit with land sales are the local government officials and their friends and family members. Of course most of the apartments are sold, but mostly to speculators. The banks have been lending in 2009 very easy money to whomever, just a fake income sheet and working contract along with 30% deposit has been enough to purchase an apartment in anticipation of never ending climbing prices. If this bubble pops China will be in really big trouble !!!!!!!!

  7. Anonymous says:

    @ Casperodj

    Try Googling “Shanghai property prices March 2010 Bloomberg.” There, you should find a report by Jian Guo Jiang at Bloomberg, stating that in the first week of March, average house sale prices in Shanghai had fallen 10% week on week (not month on month) to Y18549 per sq meter. In addition, over the same period, Shenzhen prices had fallen 14% to Y18266 psm. If you are not able to Google, you can contact the reporter on jjiang@bloomberg.net.

    On the other hand, I was discussing this very subject with a contact in the Shanghai property market a week ago and was told that prices were still rising and property selling. I have also seen and visited largely unoccupied housing developments well inland. I was told that although unoccupied, many of the properties had been bought as a hedge against inflation or for other reasons, such as working abroad and channeling money into property at home to occupy later.

    A David

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