This seems a good and detailed explanation of the developing crisis in China's property market by someone who seems to know that they are talking about:
The property sector in the Chinese economy has always been something of a puzzle. At its peak, it accounted for a quarter of the nation’s economic output, broadly measured. And it sees people in Beijing and Shanghai paying house prices similar to those in San Francisco and New York, despite having just a quarter the income of American buyers.
Now many believe that we are about to see a violent contraction of the property market in China. The government wants to intervene to curb speculation, and rein in what it calls the “three high” problem: high prices, high debt and high financialisation. The approach has been nothing short of dramatic. Financing for property developers has tanked. Earlier this year, property sales declined by as much as 20-30%, in-progress developments are not being completed and people have taken to the streets, banding together to stop mortgage payments on such projects in protest.
Many of China’s largest property developers are failing to repay their debts. Even the survivors are cash-strapped and in a liquidity crisis. The risk is that the property market crisis will drag the broader economy down with it, hitting suppliers, small- and medium-sized companies in construction, as well as household consumption. And dangerously, the banking system has at least a quarter of its assets in property.
But, fortunately, there is this:
Nor is a full-blown financial crisis likely. Major banks are state owned, and will not be allowed to fail. There are no complex, opaque chains of intermediation that characterise the western banking system. Foreign creditors to Chinese property developers will have to take a massive haircut, but the ripple effect on the international economy is likely to be limited. Foreign players have limited exposure to Chinese assets in general: today, less than 5% of Chinese equities and bonds are held by foreigners. This is unlike mortgage-backed securities, where the whole world was exposed leading up to the 2008 financial crisis.
1 comment:
"Nor is a full-blown financial crisis likely. Major banks are state owned......"
Yeah exactly. The libertarians say that government is a necessary evil. Some tiny level of usury may be a necessary evil. Bring them together and we can reduce the sickening overhead of both. Plus when there is a recession its just a single decision from the ruling elite to reduce those debts all the way around. The government of China could cut all debt to state own enterprises in half and the people just throw a big street party. Its a big difference in national risk if you owe that money to your own government rather than to foreigners in the deep state network. Professor Quiggin doesn't talk much now about state finance run out of the post offices. But really he's been vindicated even if he won't crow about it.
The Chinese have the infrastructure. If we let them survive they will survive. They have the Russians as their energy and now their military guarantor against the West. Russia is neutral in any fight between them and India. So there is some kind of natural stability there. The Chinese will get by. Western Europe is likely to collapse. The Americans are inherently durable but they are being strangled to death with red ink and relentless deep state persecution. So as painful as the next few decades will be for all of us, the idea of Chinese collapse, with such a strong backup partner as the Russians ..... not that likely. And not something we should wish for. Our job is simply to chase their excess influence from the Pacific and nothing more than that.
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