“We’ re living through a bubble. We’ re kicking the can down the road by buying time not to keep things in check, but to blow the bubble into an even bigger one. What’s happened over the past two years has made any new reforms even…
Beijing’s ability and eagerness, to create and roll from one bubble, whether it is in housing, equities, commodities, cars, bitcoin and so on, into the next has been extensively documented, however, of all recurring bubbles to impact the Chinese economy, housing is by far the most important. The reason for that is that housing provides Chinese society with a dramatic wealth effect, far greater than the stock market, and as Deutsche Bank calculated in March, in 2016 the rise of property prices boosted household wealth in 37 tier 1 and tier 2 cities by CNY 24 trillion, almost twice their total disposable income of RMB12.9 trillion (fig.11) .
Which is why it is understandable why after some feeble efforts to rein in China’s latest housing bubble at the end of 2016 and early 2017 when things got really out of control, Beijing once again let loose some time in March, as the latest Chinese housing price data revealed.
But how far will prices soar this time?
That is the question Bloomberg asked China’s “property bubble prophet.” The answer was troubling: ” China’s home prices could rise by another 50 percent in the nation’s biggest cities, as the latest measures to rein them in are likely to be eased by policy makers seeking to support the broader economy .” This is hardly a bold statement: in February even China’s housing minister admitted there is a housing bubble.
According to Zhu Ning, deputy director of the National Institute of Financial Research at Tsinghua University and author of “China’s Guaranteed Bubble: How Implicit Government Support Has Propelled China’s Economy While Creating Systemic Risk ” as measures to curb housing prices drag on growth in the second half and early next year, the government will resort to its old playbook of dialing them back again to shore up expansion.
” We’ re living through a bubble, ” Zhu said. “If we don’ t engage in more meaningful reform, which we haven’ t, we’ re very likely to have a financial crisis or a burst of the bubble. It’s a matter of sooner or later.” As a result, while he didn’t specify a time, Zhu said he expects real estate prices in major cities to surge ” by another 50 percent or so” after measures to rein them in are eased. And because policy makers have previously imposed curbs only to ease them again, people see them as a bluff.
