EIU report on China’s housing bubble

Below find the executive summary of a new report into China’s housing bubble from The Economist Intelligence Unit.

It has some terrific stats and is well worth your time, even though its analysis and conclusion add up to the intensely suspicious conclusion that ‘this time it’s different’.

One particular claim I’ll take umbrage with is the following:

China’s property sector is the main driver of the economic cycle. If residential investment slows in2011, so will the Chinese GDP growth rate. China’s GDP slowdown in 2008-09 was driven not by the global financial crisis but by domestic tightening policies in response to overheated property markets.

No doubt that played a role but it’s pretty ludicrous to claim that greatest and fastest collapse in world trade since the 1930s had no effect on the world’s largest exporter. Moreover, that the laying off of 70 million factory workers in export states, albeit temporarily, wasn’t in some way disruptive.

I short, I’d take the analysis with a grain of salt but the stats are terrific!


Houses and Holes
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  1. They can write all the S$%T they want. The truth will come out one day. Then everyone will really see what China is about. The only thing is it will drag Australia down with it because the Australia govt was so stupid to put all their eggs in one basket.

  2. The Economist has made similar conclusions about the Chinese property market in the past, but for some reason they keep ringing alarm bells about Australia’s property market.

    Some choice quotes:

    But even after controlling for population density, China remains the most overhoused country among the 35 listed.

    Conclusion: No bubble.

    In the decade leading up to 2010, China built houses equivalent to roughly twice the total number of houses currently in Spain or the UK, or about the same number as Japan’s current total housing stock

    Conclusion: No bubble

    In per head terms, the average amount of floor space per urban Chinese person has doubled over the same period.

    Conclusion: No bubble

    Perhaps Rome cannot be built in a day. But at China’s current rates of construction, it would take roughly two weeks. It took the Asian hyper-economy roughly a decade to build the equivalent of Europe’s entire housing stock (excluding Turkey)

    Conclusion: No bubble

    With 41.6bn sq metres of residential floor space in place in 2009, China already has the world’s largest stock of housing

    Conclusion: No bubble

    What are the causes and implications of “overhousing”? This is a difficult question to answer. It could simply be the case that Chinese prefer large apartments to other goods and services

    Or, it could be that its a bubble.

    You’d think that if China really needed all these apartments, there wouldn’t be 64 million of them sitting empty. Or that Shanghai and Beijing wouldn’t have vacancy rates about 50% (yes, 5-0 percent, not 5, not 15, but fifty)

    <b<House vacancy rate in Shanghai over 50% raises alarm

  3. ive got the pop corn out waiting to see the chicoms central planning crash on there heads…who knows how long they can juggle eggs b4 1 drops, but the more hard you fight cycles and print money to keep things going the bigger the unwind.
    Commods will fix china up, you cannot print oil and raw material.

    • Thanks, good catch. Two standout quotes for me:

      STEPHEN JOSKE: No, this is actually the biggest demographic change in human history, the movement of Chinese farmers into cities. So there’ll never be anything like it again.

      This is standard fare for China property boosters: China is big, REALLY BIG, this is unprecedented, and things are different in China, yada, yada, yada…

      I simply ask, why are there 64 million empty apartments? Either there aren’t as many farmers moving to the cities, or these new apartments are way, way beyond what they can afford. Either way, prices have to correct downwards.

      In fact, there’s a very strong argument that the monthly housing construction statistics from China are probably the single most important economic indicator in the entire world at the moment.

      On this point I agree completely!

  4. Did the Chinese property sector pay for this report?

    Looks like property spruiking on a grand scale.

    IMO, for a more realistic viewpoint, Andy Xie’s latest editorial within Caixin Online indicates the real issues with Chinese property with the Chinese Government propping up the market. No real difference here in Oz or any property bubble, just the size.


    A must read, here’s a short extract.

    “To change course, policy tightening must shift away from credit rationing and toward market mechanisms. Moreover, the interest rate must be lifted out of the negative column: It should be raised at least three percentage points to allay public fears. These changes are needed as soon as possible.”

    ”Stagflation Risk
    As capital efficiency declines in a climate of persistent negative real interest rates, stagflation emerges. Stagflation eventually leads to currency devaluation, and devaluations in emerging economies in the past led to financial crises.
    But the forces that favor low interest rates are powerful. For example, China’s local governments are so indebted – with debts now averaging three times revenues, and some extended by 10 times revenues – that they could not possibly survive positive real interest rates. Their survival hopes rest with sales of land at high prices, and higher interest rates would burst the real estate price bubble.”

  5. Does everyone here own property in Australia? Or have you sold it in anticipation that this bubble will burst?