Wednesday, May 14, 2014
China's real estate bubble has popped and air has gone out of the market. This is a PR headache for the government. Many Chinese invested in apartments as their principal form of savings and wealth. Now it is in danger of disappearing. Bureaucrats can attempt to re-inflate prices, but it will only prolong the time until they plummet again. The problem is that China is over-built for the population it has. The poor can't afford to live in new high rises. The middle class has purchased tens of thousands of them on the expectation that someone will live there someday. I asked a friend who recently traveled to China whether news reports of empty cities are true. He assured me they are. How can the technocratic government ease the burden and still maintain GDP growth? It has put in draconian measures but they might not be enough. Developers meanwhile have sparked protests because they are discounting to attract more buyers, and banks are holding millions of mortgages that could be underwater. This is a dangerous time for the central government and how it communicates to citizens who are watching their hard-earned money disappear.