China Between Rock And Hard [Place/Case] After Public Anger Mounts Over House Unaffordability, Real Estate Bubble

Even as China proves to the world it has perfected Greenspan's repertoire for blowing asset bubbles in any and every asset class, the fact that China is still a communist country and thus has to carefully respond to public pressure (ironically, more carefully than "capitalist" America) could put a damper in its plans to overtake the US in flooding the market with masses of excess liquidity. The reason: increasing social anger at the affordability of houses. Because unlike the US, where Mozillo's hellspawn and other subprime henchmen were all too willing to subsidize every deadbeat with a 150% LTV on a FICO of 101, China's credit mechanism is not that "advanced" meaning billions of people have become cut off from the home market for the simple reason of lack of affordability (yes, the concepts of equity and savings are still appreciated in certain non-US dominated parts of the world).

This has spooked China's minister of Housing and Urban-Rural Development enough to say on Wednesday that it plans to tighten credit policy in a move designed to curb speculation in the real estate market. Whether this is just posturing is unknown, although while manipulating GDP is one thing, and presenting a completely baseless number to an idiot world which is willing to accept at full faith any "fact" out of the Beijing propaganda central, when the marginal buyers have made home sale offers too high to cross prevailing bids, then you have a real problem.

Further reinforcing the point that China actually means business are remarks by housing minister Jiang Weixin stating that Beijing will remove incentives introduced by local governments to support housing markets. The consensus is that this is a clear indication that the central government will continue to introduce curbs and real estate market restrictions in the attempt to prevent an out of control house price bubble. In particular, China is targeting purchasers of "investment" properties. "The government will adopt tighter credit policies for the purchase of second homes to curb speculative investments."

Earlier, Premier Jiabao had said that the government plans to tackle surging property prices, highlighting tax, interest rates and land policies as the tools for tackling price increases. The premier said "housing prices in certain areas and cities have risen too fast and that has attracted the central government's attention."

Could it be that China will succeed in curbing the very greed that destroyed America? If so, Karl Marx will truly be vindicated. Yet China has to hurry if it hopes to avoid the US fate, and importing Bernanke to wreak the same havoc over in China that his second term in the US is sure to bring the country: Chinese real estate prices increased 5.7% in November according to the National Development and Reform Commission. One recalls comparable increase in California real estate in mid-2006 and early 2007, months before the subprime bubble popped, and marking the beginning of the end of the greatest (and most flawed) Keynesian experiment in human history.

h/t Market News