
China’s Property Bubble Has Already Popped, Report Says - tokenadult
http://blogs.wsj.com/chinarealtime/2014/05/05/chinas-property-bubble-has-officially-popped-report-says/
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nrao123
Here is Chanos in Nov 2010:

-5×5 office cubicle for every man/woman/child in China

-New Residential real estate accounts for 15% of GDP

-60% of GDP is towards fixed asset investment

-Buyers in China purchased 44% more residential space than they did in 2008

-Dubai during its peak had 240 sq. Mtrs/1million dollars in GDP. China has 4x that.

-Lending went up 95% yoy 2009-2008 and up 60% through 2010

-Perpetual China Bull – Goldman is forecasting a 10-20% decline in housing prices in 2011.

-Chinese vacancy rates are accepted to be unusually high but exact numbers are extremely hard to find. The Chinese investors essentially treat real estate investing as investing in Gold without even bothering to rent them out because of the unusually low rents. [http://finance.fortune.cnn.com/2010/11/17/chanos-vs-china/](http://finance.fortune.cnn.com/2010/11/17/chanos-vs-china/)

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simonh
Rental rates indicate the real economic value of a property, as against it's
notional or book value as an investment. If rents are pitifully low even
during an economic boom, that doesn't bode well for property prices when
there's a bust.

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DominikR
So the worst case scenario is that Chinas GDP growth drops to "only" 6%, and
will become the largest economy in the world by the end of this year.

We'd be happy in Europe with 3% GDP growth, and I'm sure the US wouldn't be
unhappy about that too.

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simonh
The Chinese government believes that China needs a growth rate close to 10% in
order to absorb expansion in the available labour force. Already Chinese
universities are churning out far more graduates than there are new graduate
level jobs. There's also a steady stream of labor from the countryside seeking
work in the cities and factories. The economy has barely been keeping up with
demand for jobs as it is.

The other problem is that local governments in China are massively
overextended with vast outstanding debts, mostly backed by property. Chinese
local officials are routinely rotated between regions, so they have little
long term commitment to the area they run and are only interested in results
during their tenure. This has lead to a generation of highly short-term
management decisions, ramping up debt to fund prestige projects, with chronic
lack of long term planning or infrastructure investment. Much of Chinese
domestic driven growth is spending wasted on white elephant construction
projects. When those turn out to be worthless, the entire Chinese domestic
economy will crash.

A third issue is that up to half of the populations of Chinese cities are
technically migrant labour and, even if they've lived in the city for
generations, they are technically not residents and have no claim on local
services or any welfare support and no pensions. When the bubble bursts
they'll be left with nothing. Either the flow of labour from the countryside
to the cities will reverse, or the system will break.

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rwmj
The fourth issue is the one child policy which will cause Japan-like
stagnation in a few years.

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josai
China's birth rate is above a huge number of countries, including Holland,
Switzerland, Germany and Canada. It's a problem, yes, but let's not overstate
it.

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roel_v
China: 1.58 / woman, Netherlands: 1.76, Switzerland: 1.52, Germany: 1.36,
Canada: 1.63. So yes all of them below replacement rate, but then again, they
all have vastly different demographic and economic profiles from China - most
notably in savings per person and reserved money for pensions, of which there
is basically none in China.

Well unless you count 'current market valuations' for all that empty real
estate, that is _smirks_

A country can afford, or at least isn't hurt that badly by, low birth rates
when those who are born don't have to support (or at least not fully) the
elderly - I don't think it's reasonable to put China on one line with the
other countries you mention.

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throwawayaway
Thanks for your statistics. I'd rather people didn't smirk when they are
predicting other people's misfortune. Not everyone has the benefit of your
foresight or hindsight.

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roel_v
? I'm not smirking at other people's misfortune, just at the idiocy of an
economic system engineered to shackle the people that have to live their lives
under it to workarounds like this ('this' = use assets that could otherwise be
used economically productive as stores of wealth), and at the arrogance of
claiming a centrally-led economy can provide both prosperity and freedom - two
things I find axiomatically fundamental human rights.

~~~
throwawayaway
The idiocy economic system being discussed, if it transpires as you predict,
is going to lead to some people literally losing their shirt. They stood to
gain and stood to lose, every time this happens many involved felt like they
had no option but to play the game, it's not arrogance in doing so.

It's like smirking at the gambling industry, except with very respectable and
influential people pushing it.

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NicoJuicy
This is what a friend of mine told me, don't know if it's true, it could
explain the massive ammount of buildings. Housing is build everywhere with
banking money, in China it's possible to borrow money and not paying it back.
(mostly friends of the governement who do this)

How? They invest 60% of a loan in building a property, they finish it in bad
quality and put 40% in their own pocket. The bank takes the building to get
their money back...

It seems to be a regular case in China, off course something's going to pop
after a while.

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dredmorbius
In the event WSJ are pulling paywall shenanigans (link WFM), an alternative:
[http://language.chinadaily.com.cn/portal.php?mod=view&aid=21...](http://language.chinadaily.com.cn/portal.php?mod=view&aid=217344)

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rahimnathwani
From the article: "Average home prices, meanwhile, rose 0.1% in April from
March and 9.1% from a year earlier."

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simonh
So on average house prices had risen by around 0.75% per month over the
previous year, and that's now collapsed to barely above zero, and in fact to a
rate below inflation and so a drop in value in real terms. Not good.

Also that's an average. This means there must be plenty of regions where
property prices have actually dropped. That's new.

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tomelders
Fortunately for us in the west, China is more than willing to let millions of
it's own people starve while it's poor economic policies right themselves.

It's a bitter pill to swallow, but we may well be shielded from this nascent
catastrophe because of China's disregard for human life.

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Gigablah
You seem to demonstrate the same callousness towards human life.

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tomelders
On second reading I see your point. I thought I was being sardonic but that
didn't come across.

But I stand by the comment none the less. China has set its own precedent, and
I see little reason to predict they will break with tradition.

[http://en.wikipedia.org/wiki/Great_Leap_Forward](http://en.wikipedia.org/wiki/Great_Leap_Forward)

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est
China gonna crash anytime now!!! For real tis time?

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seanmcdirmid
Overheard in 2006: USA housing market gonna crash anytime now!!! For real this
time?

A crash will happen sometime in the future, the only question is about timing.

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MarkMc
I have to add an amusing quote from John Kenneth Galbraith about the sky-high
stock prices before the crash of 1929:

 _By far the greatest force for sobriety was the New York Times. Under the
guidance of the veteran Alexander Dana Noyes, its financial page was all but
immune to the blandishments of the New Era. A regular reader could not doubt
that a day of reckoning was expected. Also, on several occasions it reported,
much too prematurely, that the day of reckoning had arrived.

Indeed the temporary breaks in the market which preceded the crash were a
serious trial for those who had declined fantasy. Early in 1928, in June, in
December, and in Februrary and March of 1929 it seemed that the end had come.
On various of these occasions the [New York] Times happily reported the return
to reality. And then the market took flight again. Only a durable sense of
doom could survive such discouragement. The time was coming when the optimists
would reap a rich harvest of discredit. But is has long since been forgotten
that for many months those who resisted reassurance were similarly, if less
permantently, discredited. To say that the Times, when the real crash came,
reported the event with jubilation would be an exaggeration. Nevertheless, it
coverted it with an unmistakable absence of sorrow_

\- John Kenneth Galbraith, "The Great Crash 1929"
[http://www.amazon.com/Great-Crash-1929-Kenneth-
Galbraith/dp/...](http://www.amazon.com/Great-Crash-1929-Kenneth-
Galbraith/dp/0547248164)

