Post by rmarks1 on Apr 20, 2014 10:29:12 GMT -5
In spite of the economic reforms, China's economy is still far from a free market. Government interference in the market is producing a bubble. When the bubble bursts, the Chinese economy will crash.
Bob
China’s blazingly fast economic growth coupled with an expanding credit bubble and fresh sloshing stimulus money created the perfect conditions for inflation, which has manifested in the form of soaring rents, food prices and wages. High inflation, negative real interest rates and limited investment options encouraged many Chinese to buy real estate to protect their savings from the ravages of inflation, helping to reinflate the housing bubble that first reared its ugly head in 2008. Housing prices soared 140% higher nationwide from 2007 to 2011 with Beijing housing up 800% since 2003. Clearly having learned nothing from the disastrous US housing bubble, real estate speculators or “flippers” have taken China by storm, buying “real estate as if they were buying vegetables,” such as the housewife who bought 10 properties within 30 minutes and the college student who flipped an astounding 680 flats.
While the IMF warns that China is “vulnerable to asset bubbles,” local governments encourage real estate speculation due to their reliance on land sales taxes to pay their mounting debts. Wild speculation has sent Chinese housing prices to unaffordably high levels, hitting a globally unprecedented 27:1 price to income ratio in Beijing. China’s overly-inflated housing prices have brought about strong social costs, as young men find themselves unable to get married without owning an apartment for example. A young architect even resorted to building and living in a small egg-shaped pod to escape the high cost of housing. High prices have sparked a building boom, with housing construction rising 41% in 2010 alone, helping to create an estimated supply of a 64 million empty apartments. Most alarming is the fact that China’s residential property investment as a share of its economy has reached the same level that the US housing bubble did at before its crash, while approaching levels hit during the epic Japanese housing bubble that resulted in a 20 year (and counting) bear market. Chinese investors’ rampant speculative fervor has even resulted in property bubbles outside of China, with Chinese real estate flippers driving Vancouver, Canada property prices far higher than locals can afford, while wealthy Chinese snap up luxury apartments in Manhattan.
www.thebubblebubble.com/china-bubble/
While the IMF warns that China is “vulnerable to asset bubbles,” local governments encourage real estate speculation due to their reliance on land sales taxes to pay their mounting debts. Wild speculation has sent Chinese housing prices to unaffordably high levels, hitting a globally unprecedented 27:1 price to income ratio in Beijing. China’s overly-inflated housing prices have brought about strong social costs, as young men find themselves unable to get married without owning an apartment for example. A young architect even resorted to building and living in a small egg-shaped pod to escape the high cost of housing. High prices have sparked a building boom, with housing construction rising 41% in 2010 alone, helping to create an estimated supply of a 64 million empty apartments. Most alarming is the fact that China’s residential property investment as a share of its economy has reached the same level that the US housing bubble did at before its crash, while approaching levels hit during the epic Japanese housing bubble that resulted in a 20 year (and counting) bear market. Chinese investors’ rampant speculative fervor has even resulted in property bubbles outside of China, with Chinese real estate flippers driving Vancouver, Canada property prices far higher than locals can afford, while wealthy Chinese snap up luxury apartments in Manhattan.
www.thebubblebubble.com/china-bubble/
Bob
Thanks.