China's Housing Market Worse Than US Before Subprime Collapse
Whether or not China is in a bubble, particularly in housing, is a source of great debate… even among your very own Daily Reckoners. Now, even a staff member from inside China’s own central bank has weighed in with a dour opinion.
Li Daokui, of the central bank’s monetary policy committee, has publicly stated to China’s State Council that their nation’s housing market is deeply troubled in way that could cause profoundly negative financial and social outcomes.
From the AFP:
“‘The housing market problem in China is actually much, much more fundamental, much bigger than the housing market problem in the US and UK before your financial crisis,’ said Li Daokui, a member of the bank’s monetary policy committee.
“‘It is more than (just) a bubble problem,’ he told the Financial Times in an interview published Tuesday. The property market in the United States collapsed as too many people were unable to repay their high-risk, or sub-prime mortgages, leading to a credit crunch in which thousands lost their homes and lending dried up…
“…He warned the high cost of housing could hamper future growth by slowing urbanisation. Rising prices were also a potential political flashpoint, especially among younger people who felt locked out of having their own home. ‘When prices go up, many people, especially young people, become very anxious,’ he said. ‘It is a social problem.'”
Chinese authorities have been looking at a variety of avenues to cool the potentially overheating market. A property tax will be tested in key areas like Beijing and Shanghai, and other new restrictions on home sales have been introduced. The real estate market is structured quite differently in China, but a collapse could be just as severe for its financial system, and possibly even worse in terms of social upheaval.
You can read more of Daokui’s comments in the AFP reporting on how China’s property woes could be worse than the US downturn.