There are many myths and mysteries about China. Many people seem to believe that because it has a state led, largely command economy, and a truckful of reserves the normal rules don't apply there and China can go on growing at 8%+ indefinitely.
Sadly I think this is far from the truth. Asians are as obsessed with house prices and ownership as the Anglo-Saxon world of US, UK, Ireland and Australia
High house prices are viewed as a source of local pride - a benchmark on well a country is doing. In fact just like elsewhere, high house prices create highly indebted, highly leveraged and highly immobile workers, and lingering social discontent as those "on the property ladder" see their theoretical wealth climb, and younger generations have to wait ever longer to be able to buy their own home.
The good news for those younger workers is that Chinese property prices
are now falling. The bad news is this creates the same negative equity and wealth destruction loops as in the US and elsewhere. Chine3se banks are highly leveraged to this market, as well as to dubious loans to many state related entities. This could lead to a dramatic fall in capital levels and so ability lend, for Chinese banks.
If the current gentle falls turn into a rout I would expect there to be some serious issues in China, and many of the China bulls to get their bulls badly burnt.
No comments:
Post a Comment