Brian4Liberty
12-31-2010, 01:06 PM
Is it a bubble? Inflation? Government stimulus in the form of lending?
China's Real-Estate Frenzy
By HUGO RESTALL
Hong Kong
Last week I sold an apartment in Beijing for more than 2.5 times what I paid for it five years and three months ago. When I asked the buyer why he was optimistic about real estate, he explained that land was limited in Chinese cities and government policies would keep the market going up.
...
It's impossible to say definitively that a market has strayed into bubble territory until after the collapse. But prices rising out of the reach of average buyers is one indicator. Housing prices in the U.S. peaked at 6.4 times average annual earnings this decade. In Beijing, the figure is 22 times.
...
The wealth itself comes from the credit machine that drives China's investment-led economy. Fixed-asset investment grew 23.5% this year, and it is forecast to grow 20% next year. After 2008, Beijing paid lip service to the need to rebalance the economy in favor of consumption instead of investment. Meanwhile it doubled down on investment, with a stimulus package for 2009, equivalent to 15% of GDP, that was made up mostly of bank loans. The torrid pace of lending continued this year.
Pushing loans out the door throws off large amounts of cash to the managers and cadres involved, which they then use to buy apartments. For instance, local governments depend on the revenue from land redevelopment, and the officials then take a cut and buy property. As long as the music keeps playing, everyone keeps dancing.
...
More:
http://online.wsj.com/article/SB10001424052970204527804576043580256245602.html?m od=rss_opinion_main
China's Real-Estate Frenzy
By HUGO RESTALL
Hong Kong
Last week I sold an apartment in Beijing for more than 2.5 times what I paid for it five years and three months ago. When I asked the buyer why he was optimistic about real estate, he explained that land was limited in Chinese cities and government policies would keep the market going up.
...
It's impossible to say definitively that a market has strayed into bubble territory until after the collapse. But prices rising out of the reach of average buyers is one indicator. Housing prices in the U.S. peaked at 6.4 times average annual earnings this decade. In Beijing, the figure is 22 times.
...
The wealth itself comes from the credit machine that drives China's investment-led economy. Fixed-asset investment grew 23.5% this year, and it is forecast to grow 20% next year. After 2008, Beijing paid lip service to the need to rebalance the economy in favor of consumption instead of investment. Meanwhile it doubled down on investment, with a stimulus package for 2009, equivalent to 15% of GDP, that was made up mostly of bank loans. The torrid pace of lending continued this year.
Pushing loans out the door throws off large amounts of cash to the managers and cadres involved, which they then use to buy apartments. For instance, local governments depend on the revenue from land redevelopment, and the officials then take a cut and buy property. As long as the music keeps playing, everyone keeps dancing.
...
More:
http://online.wsj.com/article/SB10001424052970204527804576043580256245602.html?m od=rss_opinion_main