hina and the U.S. are locked in a sort of economic mutually assured destruction, in which we need them to lend us money and they need us to buy their low-priced products. So if China's economy gets into trouble, the U.S. will feel the effects. That's why reports of a possible real estate bubble in China matter to people in the U.S. The evidence supporting the China bubble case is compelling, but the challenge is to figure out when the bubble will pop and how China will react.
Before looking at these questions, consider the evidence suggesting a Chinese real estate bubble. The New York Times reports that super-star short seller James Chanos -- who bet right on the collapse of Enron -- has now set his sites on China's real estate market. Chanos views China as "Dubai times 1,000 - or worse" and suspects that Beijing is faking its reports of 8% GDP growth, according to the New York Times.
Saturday, January 9, 2010
Thursday, January 7, 2010
China Sends Clear Signal on Bank Lending
NEW YORK -- China's decision Thursday to raise the yield on its three-month bills sends a clear signal to the country's banks to avoid excessive lending in 2010.
By hiking the rate to 1.3684% from 1.3280%, the first increase in nearly five months, China emphasized its determination to tackle the fallout from the government's economic stimulus program that resulted in a massive surge in bank lending last year.
But despite a pessimistic reaction in some financial markets, it doesn't necessarily follow that an adjustment to a weekly money market operation means the government will suddenly tighten credit in the world's third-largest economy.
Specifically, China is telling its banks the central bank doesn't want to see an orgy of casual credit during the first months of the year in anticipation of tighter rules later on. It is also taking concrete steps to mop up some of the excess liquidity sloshing around its financial system because of indiscriminate lending in 2009.
By hiking the rate to 1.3684% from 1.3280%, the first increase in nearly five months, China emphasized its determination to tackle the fallout from the government's economic stimulus program that resulted in a massive surge in bank lending last year.
But despite a pessimistic reaction in some financial markets, it doesn't necessarily follow that an adjustment to a weekly money market operation means the government will suddenly tighten credit in the world's third-largest economy.
Specifically, China is telling its banks the central bank doesn't want to see an orgy of casual credit during the first months of the year in anticipation of tighter rules later on. It is also taking concrete steps to mop up some of the excess liquidity sloshing around its financial system because of indiscriminate lending in 2009.
Tuesday, January 5, 2010
Global Economy's Next Threat: China's Real Estate Bubble
We might be tempted to envy China's spectacularly resilient real estate boom: After sagging in the global financial meltdown of 2008, property values in China's urban centers skyrocketed in 2009. Shanghai's Pudong district, for example, experienced a 57% rise in a matter of months.
By comparison, residential real estate in the U.S. is up 3.4% on average from its bottom in May, but still almost 30% below its peak in April 2006.
However, those admiring China's reflated housing bubble might be careful what they wish for, as the new real estate bubble in China is even more precarious than the one which imploded in 2008.
The popping of China's current housing bubble -- considered inevitable by regional experts such as Andy Xie -- could have widespread consequences. If housing turns down in China, China's growth could slow or even decline. And since the entire world is looking to China to lead global growth, then that could spell major trouble for the "global economy is recovering" story.
By comparison, residential real estate in the U.S. is up 3.4% on average from its bottom in May, but still almost 30% below its peak in April 2006.
However, those admiring China's reflated housing bubble might be careful what they wish for, as the new real estate bubble in China is even more precarious than the one which imploded in 2008.
The popping of China's current housing bubble -- considered inevitable by regional experts such as Andy Xie -- could have widespread consequences. If housing turns down in China, China's growth could slow or even decline. And since the entire world is looking to China to lead global growth, then that could spell major trouble for the "global economy is recovering" story.
Sunday, January 3, 2010
* STORY * VIDEO * China Property Stocks Drop Most Since August on Curbs
By Bloomberg News
Dec. 18 (Bloomberg) -- China property stocks fell the most in four months, led by Poly Real Estate Group Co., on concern the government will step up measures to curb property speculation.
Poly Real Estate, China’s second-largest developer by market value, plunged 7.5 percent to 21.88 yuan, a ninth day of losses, after the government increased down payment requirements on land purchases. Gemdale Corp., the fourth largest, slid 7.8 percent to 13.20 yuan. The Shanghai property index slumped 5.4 percent, the most since Aug. 31.
Property stocks have slumped this week after the Xinhua News Agency reported the government will target “excessive” growth in property prices in some cities. That follows the cabinet’s statement last week that it will re-impose a sales tax on homes sold within five years, after cutting the period to two years in January.
“We’re at the start of an all-out crackdown on the property market,” said Wang Jia, an analyst at Industrial Securities Co. in Shanghai. “The current speed of gains in property prices cannot be sustained. Local governments may also work out their own policies targeting house prices.”
Dec. 18 (Bloomberg) -- China property stocks fell the most in four months, led by Poly Real Estate Group Co., on concern the government will step up measures to curb property speculation.
Poly Real Estate, China’s second-largest developer by market value, plunged 7.5 percent to 21.88 yuan, a ninth day of losses, after the government increased down payment requirements on land purchases. Gemdale Corp., the fourth largest, slid 7.8 percent to 13.20 yuan. The Shanghai property index slumped 5.4 percent, the most since Aug. 31.
Property stocks have slumped this week after the Xinhua News Agency reported the government will target “excessive” growth in property prices in some cities. That follows the cabinet’s statement last week that it will re-impose a sales tax on homes sold within five years, after cutting the period to two years in January.
“We’re at the start of an all-out crackdown on the property market,” said Wang Jia, an analyst at Industrial Securities Co. in Shanghai. “The current speed of gains in property prices cannot be sustained. Local governments may also work out their own policies targeting house prices.”
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