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Housing Bust in China? Foreign Affairs Says Yes

An article in Foreign Affairs, a journal so prestigious that it is even received here at the stately Mead manor, adds some establishment weight to worries about China’s economy.  Don’t worry about the Chinese real estate bubble popping some day, says the piece by Patrick Chovanec.  Pointing to a 35 percent fall in Beijing apartment prices in the month of November alone, and looking at the excess inventory piled up around the country, Chovanec says the bad times are already here:

What makes the future look particularly bleak is the lack of escape routes. If Chinese investors panic and rush for the exits, they will discover that in a market awash with developer discounts, buyers are very hard to find. The next three months will be a watershed moment for a Chinese investor class that has been flush with cash for years but lacking a place to put it. Instead of developing a more balanced, consumer-based economy, an entire regime of Beijing technocrats — drunk on investment-led growth — let the real estate market run red hot for too long and, when forced to act, lacked the credibility to cool the sector down. That failure threatens to undermine the country’s continued economic rise.

If Via Meadia knew what was coming next in China’s economy, the vast international Mead fortune and its impenetrable web of offshore accounts and trusts would be even larger and more imposing than it is.  Even so, we fear Chovanec has a point.  China’s technocratic elite has gotten very good at playing the game a certain way, but as economies develop and circumstances change, the rules change. This may or may not be the Big One, the economic shock that forces China onto a new and permanently slower growth trajectory, but that shock is sure to come.

Foreign Affairs is right to suggest that we keep a close eye on the Chinese housing market; Via Meadia will do our best to keep tabs on what could be one of the biggest stories of 2012.

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  • Luke Lea

    “Instead of developing a more balanced, consumer-based economy . . .”

    Easier said than done.

    It would be interesting to know how many billboards there are across the Chinese countryside, especially outside the export manufacturing zones, and what percentage of the products advertised are produced in China.

    With a state-owned banking system, in particular, I think it would be hard to channel capital into indigenous manufacturing start-ups efficiently, or identify truly talented entrepreneurs as opposed to the cronies of the local party establishment.

    It all comes down to whether China truly has a market economy. I don’t know the answer.

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