Home Business Real estate debt crisis is more than experts: China’s real estate bubble is tricky | China Economy | Evergrande

Real estate debt crisis is more than experts: China’s real estate bubble is tricky | China Economy | Evergrande

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[EpochTimesNovember192021](Epoch Times reporter Zhong Yuan comprehensive report) China Evergrande Group broke out in a debt crisis, triggering a series of bursts of China’s real estate bubble. Some people compare it with the real estate bubble in Japan 30 years ago, but Japanese media reports pointed out that the conditions in China and Japan are very different. Experts recently pointed out that China’s real estate bubble is quite tricky.

The latest report by Fitch, an international credit rating agency, predicts that Chinese real estate companies may have more debt defaults and restructurings in the next three months.

Japanese media: China’s real estate risks exceed Japan’s bubble economy period

Kyodo News Agency reported in late October that after the collapse of the bubble economy in Japan, the long-term deflation, the weakening of corporate profitability, and the fact that employees pay more attention to maintaining employment rather than raising income, have caused average wages to stagnate for almost 30 years.

The Nikkei Chinese website quoted statistics from the Financial Research Institute in late September that the average residential price in Shenzhen, Guangdong Province is 57 times the annual income, and in Beijing it is also 55 times. But even in Tokyo during the bubble economy in 1990, the housing price-to-income ratio was only 18 times. Housing prices in China’s big cities are no longer affordable by ordinary people, and they are also the main symbol of the gap between the rich and the poor.

The report pointed out that China’s real estate risk exceeds that of Japan’s bubble economy period. Moreover, during the economic bubble in Japan, funds not only flowed into real estate, but also flowed into the stock market. In the 10 years up to the end of 1989, the Nikkei Average has reached a record high, with a growth rate of 5.9 times. However, the level of China’s Shanghai Composite Index is only about 1.5 times that of 10 years ago, indicating that the concentration of Chinese funds in real estate may be more serious. It is not easy to deal with the economic downturn caused by falling housing prices.

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General economist Wu Jialong wrote an article “Tricky China’s Real Estate Bubble” in Caixun on November 16, and mentioned that since China’s real estate plays a significant role in the real economy and the financial sector, people have to ask why the Beijing authorities are watching. Is there a real estate crisis?

Wu Jialong said that there is a theory that the CCP saw the Japanese real estate bubble burst in the 1990s and lost the Japanese economy for 30 years. In order to prevent this loss, the CCP chose to take the initiative to squeeze the bubble, hoping that the real estate bubble could softly land.

He said, however, wishes are beautiful, but reality may be cruel. In handling asset bubbles, the CCP’s financial bureaucrats may lack experience and are very prone to mistakes. If you want to squeeze the real estate bubble, you must first shrink monetary policy in a gradual manner, including first letting quantitative easing exit the market, and then slowly raising interest rates.

He said that the supporting approach is selective credit control, which must first allow credit expansion to gradually withdraw from the real estate market. Next, we must take good care of our confidence and avoid the collapse of confidence, which will cause the real estate market to freeze, so that those who should have bought a house dare not buy it, and the house that does not need to be sold is also sold. The risk of actively squeezing the bubble is that it may turn into bursting the bubble and making things uncontrollable.

Taiwan’s Caixin Media Chairman Xie Jinhe posted on Facebook in early October that many people told him that the Chinese Communist Party saw the Japanese real estate bubble burst in 1989, causing Japan to lose 30 years. This time it was the Chinese Communist Party’s initiative to break the real estate bubble and avoid China. Repeat the mistakes of Japan. The methods are clever, but bursting the bubble does not have to pay a price. The source of the bubble in Japan is different from Japan’s unrestrained lending by the Japanese banking industry. Japan’s real estate collapsed and banks went bankrupt.

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Xie Jinhe pointed out that China’s financial system is an accomplice structure of collusion between government and businessmen. Those with power can move money to the bank. Many real estate groups and wealthy people are so developed. Now the central government is squeezing a bubble, and these debt-laden real estate companies will get down at any time. The dominoes in the Chinese real estate market will fall one by one, and subsequent consumption will also be affected. The burst of the real estate bubble will bear the brunt of domestic consumption and will also pull down China’s economic growth intensity.

Wu Jialong: China’s real estate bubble will impact the overall economy and produce three domino effects

Wu Jialong pointed out that the number one problem in China’s economy is currently the real estate debt crisis triggered by Evergrande. The extension and spread of this crisis will inevitably impact the overall economy and produce three domino effects.

The first domino is in the real economy. He analyzed that the upstream and downstream of China’s real estate industry will decline together, from building materials, construction, home appliances to housing intermediary, and even property management, the entire industry will be dragged down. This will first suppress economic growth, employment and income, and then suppress consumption in the domestic demand market. At the same time, buyers will default because they can’t pay their mortgages, causing a new wave of recession in the real estate market.

The second domino is in the bank. He said that China’s real estate is the collateral for loans. When the real estate market drops, the value of these collaterals also drops, which is not good for banks. The bad debts of banks will increase sharply. From real estate developers to home buyers, there may be a large number of defaults. If serious, it will cause financial system risks. Banks will not be able to meet the normal industry financing needs, so the overall economy will face greater pressure.

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The third domino is in local finance. He pointed out that due to the real estate recession, developers will not dare to grant land for development as they did before. As a result, the local government’s land transfer business will also have failed bids, which will seriously affect fiscal revenue. Therefore, bonds issued by local governments may also default. Except for Shanghai, local governments now have fiscal deficits. The cumulative total of local government debt is estimated to exceed RMB 50 trillion, and Evergrande’s debt is only RMB 2 trillion.

Yaita Akio: Investing in China must consider the great hidden political risks

Japan’s Sankei Shimbun’s Taipei branch director Akio Yaita said on Facebook on November 15 that China’s economic GDP growth is lower than expected. Some people say that Chinese companies are waiting to die if they don’t restructure. Once they restructure, they will die. China will now enter a post-Deng Xiaoping. The times, but sarcasm Deng’s “one stone, two cats, three fish and four chickens” Conducive to the idea of ​​four chickens: four basic principles), Chinese companies want to transform, if it is handed over to the market mechanism, it is possible, but under the restrictions of political power, companies can not move at all.

Akio Yaita said that in addition, the CCP strictly controls the media and does not allow the media or self-media to slander or make negative comments on the Chinese economy. He feels that China’s control of speech is a typical example of the well-known idiom “cover your ears and steal the bells”.

He reminded the risks of investing in China, referring to China as a society governed by man, and the great hidden political risks must be considered. Don’t invest just by looking at the figures in the financial statements.

Editor in charge: Li Yuan#

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