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Risky Business
The China Housing Bubble Keeps Growing

Midway into 2017, Chinese authorities are still looking for good options to restrain the booming housing market—and they’re coming up empty. With every restriction either engendering local opposition or proving ineffectual, the bubble continues to expand, explains the Wall Street Journal:

With each new policy intended to restrict home purchases, buyers are piling in. Stressed about the prospect of being left behind, many are borrowing heavily, believing prices will continue to rise despite the restrictions and will soar if the government has to lift restrictions to spur economic growth.

Another article of faith is that the Communist Party won’t allow housing prices to collapse. “The government will spare no effort to make sure there are no big swings in the property market,” says Ni Pengfei, a housing expert at the Chinese Academy of Social Sciences, a government think tank.

The desperate home buyers are exposing Beijing’s inability to control a housing market it has been relying on for economic growth. A decade ago, the real-estate sector, including construction and home furnishings, accounted for about 10% of China’s gross domestic product […] It now accounts for almost one-third.

When it comes to reining in the housing bubble, China’s authorities are damned if they do and damned if they don’t. They can’t stop the bubble without wrecking the economy and infuriating the public; they can’t let it keep building without it ultimately wrecking the economy and infuriating the public.

The cost of inaction keeps rising, but so too does the cost of aggressively confronting the bubble. When authorities imposed property controls in Shanghai this year, scores of angry middle-class home-owners took to the streets in protest, leaving the hapless authorities to deflect responsibility while walking back the new restrictions. And it’s not just homeowners who stand to lose from curbs on the market. China’s local governments rely heavily on land sales to fill their coffers; rising property prices suit them because it makes the undeveloped land they hold ever more valuable. In other words, political incentives and short-term economic growth demand the maintenance of a status quo that is clearly unsustainable in the long run.

As ever, it is a fool’s errand to confidently predict when the property bubble will burst. But China’s current slate of regulatory half-measures does not seem to be deflating it—and if it pops, the consequences could be disastrous.

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  • Andrew Allison

    It’s not if, but when it pops.

    • Isaiah6020

      I wonder where our favorite Chinese trolls are. Now that dollar is at 10 months low, I would love to hear how China is artificially propping up dollar. 🙂

      • Dale Fayda

        I was just thinking the same thing…

  • three_chord_sloth

    China is just one giant Minsky Moment waiting to happen…

  • Angel Martin

    If China thinks rising house prices are a problem, wait until they start falling…

  • Pait

    They may well be true but they’ve been talking about the China bubble for 20 years. Anyone who paid attention missed enormous opportunities.

    • Kevin

      There’s the old saying about those who bet against bubbles: “The market can stay irrational longer than you can stay solvent.”

      • Pait

        Right! And there are the contrarians who have predicted 10 out of the last 2 bubbles, an augmented version of Samuelson’s saying.

        Not to say bubbles don’t exist… or that competente analysts can’t see them coming…. but the China one, I’m not sure.

  • seattleoutcast

    Is that the Chinese bubble in China, or the one on the West Coast caused by Chinese money fleeing the country?

  • RippedTopShelf

    Humanity keeps returning to the folly of tulip mania. At least it’s better when our enemies are the fools.

  • Is China going to follow the same course as Japan, an economic boom with modernization, then a crash?

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