The Beijing Bubble: Will China's Housing Addiction Damage the Global Economy?
07/24/14
Christopher Whalen
Economics, China
"The sad fact is that much of the housing construction activity in China over the past several years was neither rational in economic terms, nor sustainable in terms of basic financial mechanics."
For some time now, a number of analysts have been warning that the boom in China’s housing sector
could be the catalyst for a major economic collapse in that country.
Such warnings are probably overdone, however, for the simple reason that
the Chinese housing market is neither free, nor does it really reflect
market forces. But that does not mean that the slowdown in China’s
housing sector is not an ominous development.
Since
the economic crisis began in the United States and Europe in 2008, the
global economy has undergone a massive change, with exports by the
developed nations falling and nations such as China scrambling to adjust
to this reality. In order to avoid the paramount threat of political
instability implied by falling export earnings and employment, China
launched into a period of massive internal investment and development
that not only caused a bubble in domestic housing prices, but
distortions in global markets for commodities and even housing around
the world.
China’s National Bureau of Statistics reported a surge in home sales after the 2008 subprime crisis,
followed by a collapse in volumes that saw sales actually fall in the
first half of 2013. Much of the construction and sales of housing in
China was fueled by a vast increase in credit provided by China’s
state-controlled banks and companies, this again following the
imperative of creating growth in order to offset the decline in earnings
from exports.
Esther Fung of The Wall Street Journal
reports that the slowdown in China’s housing market has had a ripple
effect throughout the economy, causing a decrease in spending for goods
and services that runs counter to official targets for growth and
employment. But the sad fact is that much of the housing construction
activity in China over the past several years was neither rational in
economic terms, nor sustainable in terms of basic financial mechanics.
But that does not mean that China is facing a Western-style financial
correction, much less a collapse.
Read full articlehttp://nationalinterest.org/feature/the-beijing-bubble-will-chinas-housing-addiction-damage-the-10941
No comments:
Post a Comment