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China Property Bust next ?

Ambrose Evans Pritchard is back after a gap with his, as always well researched and fresh analysis.  His latest post in the Telegraph –

Credit tightening threatens China’s ‘giant Ponzi scheme’ – should cause green shooters to pause.  Could it be that  China’s grey leaders are as fallible as ours in boosting liquidity without taxing land – the asset that attracts cheap money like no other?    The figures are very worrying and oddly familiar to the Irish eye…

Mr Xie, who wrote his doctoral thesis on Japan’s bubble in the 1980s, said China’s ratio of property prices to incomes is seven times higher than in the US. It costs three months’ salary per square meter of space – arguably the highest in the world – though tower blocks are sitting empty. Prices are being propped up by state enterprises, abetted by local Communist bosses.

Mr Xie said Chinese booms and busts follow a political rythmn. There is a deeply-rooted belief that the authorities can keep the game going – the “Panda put”, China’s answer to the “Greenspan Put” – and that the Communist Party will not let the rally fizzle before the 60th anniversary of the revolution on October 1. This belief is self-fulfilling, for a while. 

Mr Xie expects China’s rally to falter around October, followed by fresh shots of liquidity before the economy falls into a deeper slump by 2012. “Property prices could drop like Japan’s in the last two decades, which would destroy the banking system,” he said.

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Posted in Money Systems, News.

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