Alarming China Statistic of the Day

More news from China about the miraculous recovery in the nation's real estate market comes via this Bloomberg report.

Record bank lending in China drove average prices for new homes 6.3 percent higher in June in 36 large and medium-sized Chinese cities, according to government data. That gain came even as urban unemployment rose and wage growth for workers in Chinese cities slowed.

“The government should do something to effectively control the speed of growth of the real estate market,” Han said. “The housing price in Shanghai is already too high. We must prevent excessive inflation of home prices in this market.”

Chinese banks made 7.37 trillion yuan ($1.07 trillion) of new loans in the first six months of 2009 as the government sought to bolster economic growth that slowed to the weakest in almost a decade in the first quarter.

As a point of reference, going back more than 20 years in the U.S. Case-Shiller 10-City Home Price Index, the largest monthly price increase was just over two percent in July 1988.

Comments

[Alan Young:]

This is really puzzling. The government has control of enough economic levers to steer things whatever direction they want. The leadership can't be as short-sighted or greedy as US financeers have been. Why would they imitate the worst behavior of western market economies, after seeing the devastating outcome?

Aug 05 04:24 PM

[Mark Bern:]

Oh yeah, just what the world needs is another bubble getting ready to burst! And this time, if it happens anytime soon, it will cripple the economy of the nation that is supposed to save the rest of us by pulling us out of recession with their incredible growth story.

Unsustainable growth, whether is the US or a developing country is still unsustainable over the long term. Unless the Chinese government can find a way to level off the housing price bubble, the result becomes no longer a matter of if, but when the China miracle becomes exposed and the leaders end up with the contents of the bubble substance sticking to their faces.

What might we expect in response from the rest of the world? I don't even want to imagine but suffice it to say that I expect things to get pretty sticky (I mean that in a bad way).

Aug 05 04:55 PM

[rlirph:]

Once again we make references to China using our US standards. Chinese real estate and stock market are highly speculative and volatile. It is not unusual to see prices go up 20% in one month. It is also not unusual to see prices come down just as fast. One cannot compare China market using US guideline.

As to why housing prices in China in general will go up? That is because the China government is the biggest landlord in the country. When the country taken over by the Communist Party all land except the ones used by ordinary peasants returns to the government. All the money in those outrageous land prices go straight to the local government coffers.

If you are the biggest landlord why would you implement measures to have affordable housing? For those who are interested in this subject just examine the government policies of Hong Kong under British rule will tell you what China government will do regarding real estate in teh future.

Aug 05 05:00 PM

[Jasper M:]

On Aug 05 04:24 PM Alan Young wrote:

> This is really puzzling. The government has control of enough economic levers to steer things whatever direction they want.

No, Alan, they don't. They THINK they do. But 'top-down' control doesn't work on This side of the water, it sure as hell won't work in China, where decades of draconian economic controls have assured he existence of a robust black market for, well, Anything.

>The leadership can't be as short-sighted or greedy as US financeers have been.

Care to place a teeny wager on that?
These are the heirs of Mao, a mass-murderer that made Hitler look like Mary Poppins. Within living memory, the were driving tanks over their own children. There is clearly No bad idea they can be counted on to shrink from.

>Why would they imitate the worst behavior of western market economies, after seeing the devastating outcome?

Precisely beCause their mythology tell them they are better than us.

Aug 05 05:08 PM

[Big Mouse:]

On one side, manufacture is not profitable, so industry funds leave factories for other profitable ways. Today the funds flow from the equity market to the property market.
On the other side, officials' relatives are active in making money in the property market. Therefore, local govs promulgate policies to boost property prices. For expample, Shanghai approves more citizenships as demands, despite there is an unempolyment problem.

Aug 05 10:19 PM

[Mark Anthony:]

Yes there has been an abrupt 180 degree turn, literally overnight, in the real estate markets in China. This suddenturn to the bullish side was so dramatic that it took many people by surprise and most western analystswould not believe it.

The fundamental reason, is that the wealthierChinese has sensed the looming of high inflationto come. I have discussed this phenomena in details and what it means to the US dollar:

seekingalpha.com/artic...

seekingalpha.com/artic...

Make no mistake about it:The inflation in China will be promptly exported back to the USA in the coming months. Prepare yourself for it! Prepare for hyperinflation globally.

Aug 06 06:12 AM