We Know How This Ends! - China Copies U.S. Housing Bubble Policies

Via Investing In Chinese Stocks blog,

In the late 1990s, the U.S. government under Clinton began pushing home affordability with an upgrade to the 1977 Community Reinvestment Act. The law was originally "designed to encourage commercial banks and savings associations to help meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods." In 1994, compliance with CRA laws became a prerequisite for mergers and interstate expansion.

This became explicit in 1999 as part of the Glass-Steagal repeal effort: "any bank holding institution wishing to be re-designated as a financial holding institution by the Board of Governors of the Federal Reserve System would also have to follow Community Reinvestment Act compliance guidelines before any merger or expansion could take effect."

President Bush expanded on CRA goals with the Ownership Society, the cornerstone of which was home ownership. In 2005: Countrywide Ups Minority Lending Goal to $1 Trillion

Countrywide Home Loans Inc. has extended its minority and low-income lending goal by $400 billion to $1 trillion over the next five years. The company says its "We House America" initiative has been overwhelmingly successful since its 1992 launch and initial goal of $1.25 billion in loans, prompting the lender in 2001 to set a new bar of $600 billion in loans by 2010. However, Mary Duron, senior vice president of fair lending and the "We House America" lending program, says Countrywide had reached the $300 billion mark by the end of last year and decided to strive for even more minority and low-income lending. Angelo Mozilo, chairman and CEO of Countrywide Financial, says the program has helped put 2.4 million families in homes, and the number is expected to nearly triple over the next five years.

Countrywide went down the tubes and almost took down Bank of America after it acquired Countrywide in early 2008.

Besides a government-encouraged expansion of subprime lending and very willing participation by banks and financial institutions, Wall Street was looking for mortgages to bundle into MBS and CMOs. As demand for these products surged, Wall Street replaced homebuyers as a source of demand for new loans. Crooked mortgage brokers force fed low-quality loans to borrowers including to people with no way of paying the mortgage (dubbed NINJAs loans because the borrower had no income, no job). The result was a perfect storm that blew up spectacularly in 2008.

History is rhyming in China.

The government is forcing large banks to lend trillions of yuan for rental housing, at below market rates, to borrowers who can't afford it, and banks are trying to pass of the risk by bundling these loans into asset-backed securities.

Reuters: China pushes state banks into home rental market at their own risk

As property prices rocket across China, Beijing has appealed to the country’s banks and insurers to help accelerate the development of rental markets as a way of making homes more affordable – and rein in speculative sale markets.

The big state banks have responded by pledging more than 3 trillion yuan ($467 billion) in rental housing financing, including for real estate developers, leasing firms and tenants, according to Reuters calculations. The total value of the rental market was 1.3 trillion yuan last year.

China Construction Bank Corp (CCB)(0939.HK) (601939.SS), the second-largest lender, is the most visible example of this trend, giving loans to renters at ultra-low interest rates with long repayment periods.

These loans are popular in pricey Shenzhen. 

Liu Feng, a 28-year-old product manager, was one of the first to take out a rental loan from CCB for his 90 square meter (970 square feet) three-room apartment in Shenzhen.

He said his monthly payments under the plan - including interest - came to about 6,000 yuan, less than if he paid for it himself, meaning the bank was effectively subsidizing his rent.

“The property developer leased the apartment to CCB, and CCB leased it to me,” said Liu.

In the U.S., the subprime borrower could not afford the home. The bank "subsidized" their mortgage (rent) rent because adjustable rate mortgages offered very low teaser rates for the first few years. As those rates reset in 2006, 2007 and 2008 the homeowners defaulted on their homes. Wall Street made billions selling mortgage debt that was effectively long-term loans made to short-term renters, and banks ended up owning the property.

In China, there won't be a similar "reset" situation that blows up the market. That said, the uneconomic arrangement is no different. Lending at below market rates is a recipe for disaster because it distorts the market and accrues losses that eventually have to be made up.

Also last year Industrial and Commercial Bank of China Ltd (1398.HK)(601398.SS) launched a similar product in Guangzhou and Bank of China Ltd (601988.SS)(3988.HK) issued its first loan to renters in Xiamen. Both of the southern cities have been chosen by the central government to test real estate sector reforms.

\So far, only large state banks are offering the loans. Multiple sources at mid-sized and small lenders said they were daunted by default risks, high costs and low returns.

Losses are likely, the sources said, as the loans have to be priced below market rates due to the pressure on banks to show support for developing the rental market.

Even large listed banks are not participating because they don't have the PBoC put:

A retail loan officer at one of China’s 12 joint-stock banks said his bank had decided not to offer the product.

“After CCB launched the products we looked into it closely, but only to find that was not something we could afford - interest rates were just too low to cover the cost of funding,” the officer said, declining to be named. “Only deep-pocketed large state banks can bear the cost.”

More shades of subprime:

The products have low bars for loan applicants, so risk control is really the key,” said Yang Xianling, chief economist at Ke Research Institute. “A credit-based mechanism needs to be introduced to carefully prevent speculators.

The final piece of the puzzle:

To mitigate risks, banks are considering packaging rental-related loans into asset-backed securities and real estate investment trusts and transferring risk to other investors, the sources said.

And the fuse that could set off the time bomb: the Foshan model.

“We have examined more than 100 projects of all kinds, but their returns are super low,” said Cai Yu, general manager at Foshan Jianxin. “Frankly we could have earned more if the money were deposited at a bank.”

Foshan Jianxin has been ordered by local authorities to issue loans at below market price to cultivate the rental housing market and lure tenants, Cai said.

What happens as losses pile up? Eventually, these companies will start selling properties to recoup capital.

Therefore, even with the capital infusion from CCB’s subsidiary and others, the company may still have to sell houses in a few years to cover losses, Cai said.

Despite that, CCB said this “Foshan model” has been copied in 18 other cities in Guangdong province, and it could be extended to other smaller cities nationwide.

  • Housing affordability push by government? Check.

  • Banks pressured to make riskier loans? Check.

  • Banks offering below market rates? Check.

  • Short-term borrowers (renters) taking out long-term loans? Check.

  • Loans packaged into ABS? Check.

  • Potential time bomb? Check.

Being China, there won't be a replay of 2008 because the process of taking losses is very different. There will be losses though, lots of them, and eventually it will end up on the government's balance sheet or more likely, the PBoC. This is unsustainable credit creation that will have to be monetized down the road, driving the future exchange value of the renminbi even lower.

And while this is all going on, developers that lack government backing are starting to chase expensive overseas financing.

Reuters: Chinese property developers bet on higher returns with mezzanine loans

Chinese property companies are increasingly tapping expensive mezzanine loans as they seek out higher returns, a trend that could undermine government efforts to cool the country’s booming real estate sector and rein in debt.

Many developers are turning to offshore mezzanine loans as government measures to tighten credit and clamp down on shadow banking in China are increasingly felt, according to lenders.

Others are taking out the loans for M&A activities or to raise working capital that would allow them to prolong construction periods in hopes that the government will lift price caps on new projects, the lenders say.

...InfraRed is now talking to two smaller cap developers listed in Hong Kong for loans for a residential project in Guangzhou and an eastern city of Yangzhou at interest rates of 15 percent to 18 percent. He declined to name the borrowers as the deals are not closed yet.


philipat SACRED-COW Tue, 06/12/2018 - 22:37 Permalink

In the case of China, the end point is slightly different because the debt is all domestic. So a Government owned Bank writes off the debt by a Government owned developer and PBOC prints more money to recapitalize the Bank. No need to disclose PBOC "Balance Sheet" transparently. Next round commences. The other difference is that, in the process, Chinese malinvestment will have created a housing stock for future use by actual people, even as social housing, as compared to simply enriching the "elite".

And, of course, China has a total of $3T in reserves plus a mountain of undisclosed Gold to fall back on as an indirect backing of CNH.

In reply to by SACRED-COW

Snaffew philipat Tue, 06/12/2018 - 23:09 Permalink

you, nor I, nor any analyst has any idea what China has for reserves, gold or debt----that country is as overextended as the good ol' USA.  This is a global shitstorm that will only be resolved by WWIII.  No way does any of this global lunatic money printing and massive debt holdings end peaceably.

In reply to by philipat

Bokkenrijder ll951983 Wed, 06/13/2018 - 01:25 Permalink

Hear hear! I've been saying this for years now, always harvesting red (fiat, haha) kudos!

Forget about a 'Chinese Gold Standard!' Chinese copy everything the West does or makes; Louis Vuiton bags, DVD's, software, Adidas t-shirts, housing bubbles, stock exchange bubbles, EVERYTHING bubbles! Furthermore, the Chinese absolutely LOVE to gamble (ever been to Macau?), so all kinds of bubbles come naturally to them.

Naive souls here on ZH (most probably people who have never been to China) are dreaming about a 'Chinese Gold Standard,' fueled by bullshit artists on KWN like the Swiss faggot and that British con artist, but I would like to say: keep on dreaming suckers! Instead the Chinese have massively invested in fiat: US treasuries and are busy copying almost exactly what Japan did a few decades ago by propping up failing industries and building 'bridges to nowhere.'

That, my dear ZeroHedgers, is how 'smart' the Chinese are! 99,99% of the Chinese brainwashed people can't think for themselves, and most people in the Beijing Politburo are completely clueless communist economic planners.

In reply to by ll951983

pc_babe Giant Meteor Tue, 06/12/2018 - 22:19 Permalink

The taxpayer via the FED, FANNIE & FRED back-stopped 100 pennies of loss on every dollar BofA was handed in the CountryWide asset transfer. Then they bundled all the non-performance in a "bad bank" and bid the assets for additional profit. How much was the taxpayer every reimbursed?

Cry me a river

In reply to by Giant Meteor

Yog Soggoth LetThemEatRand Tue, 06/12/2018 - 22:08 Permalink

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In reply to by LetThemEatRand

Ghost who Walks LetThemEatRand Tue, 06/12/2018 - 22:22 Permalink

Based on my time in China I believe that the photo is very real. I can see a power station in the distance, and what I think is a canal running though the area. I infer that the canal is there, as there is a series of smokestacks in a line that will be supplied with coal via the canal.

It is normal to build identical houses or apartment blocks on large sites. This leads to construction and purchasing efficiencies that feed back into lower costs. There is also the approvals process which normally requires a Design Institute to design the building and this is the primary approval method. Since the Design Institute does all the structural calculations and checks conformance with National Standards, it then makes sense to re-use the design to lower unit costs on each structure.

It is possible to identify the Province where these structures are built by various details on the structures such as Lightning Arrestors or Roof finials that are specific to that Province.


Roddy6667 suggests this is in Wuxi City, Jiangying district, and when I check Google Earth I can see the similarities with HuaXi, but I can't can get an exact match. I will agree with him in the absence of any contrary evidence.

In reply to by LetThemEatRand

roddy6667 LetThemEatRand Tue, 06/12/2018 - 23:26 Permalink

That's photo of Huaxi, China's richest village. New urban single family houses are very rare. This photo is not typical of China at all. I thought it was from Mexico City until I checked. 

Also, most young people in China don't buy a house. Their family buys it for them with cash saved over a 30 year period. Articles like this are very misleading. 

In reply to by LetThemEatRand

roddy6667 HRH of Aquitaine 2.0 Wed, 06/13/2018 - 04:53 Permalink

You need to come out of your bunker or your parents' basement and do a reality check now and then. I live in China and own a home here. There are plenty of new homes that can be afforded by blue collar families in most Chinese cities. Millions of homes are built every year and purchased by ordinary, everyday families. Beijing, Shanghai, and Hong Kong don't represent the housing market any more than park Avenue in NYC is typical of America.

BTW, a FoxConn employee is typically a young female migrant worker living far from home and living in a dorm. If two average Foxconn workers got married they would be able to support a blue collar lifestyle. The pay is not that bad. Things are much cheaper here. A US dollar goes 5X as far as in America. 

And before you start whining about supposed suicides, let's look at the facts. Foxconn has 1.3 million employees. In 2010, the year with the highest number of suicides, they had 14. Out of over a million employees. The suicide rate at Foxconn  is much lower than China in general and many other countries. Since 2010, there have only been one or two a year. Out of 1.3 million.

You have been swallowing all the propaganda that is fed to you.

In reply to by HRH of Aquitaine 2.0

Clowns on Acid Tue, 06/12/2018 - 22:06 Permalink

So the Chinese have learned how to control by forcing Banks to "lend" to anyone as per the neo Bolsheviks in US. Next step is learning how to print out of thin air... and prices never go down ! They go up exactly 25 per year ...to meet official inflation.

The fomula is so easy...Its not the stock its the flow...of course.

Salmo trutta Tue, 06/12/2018 - 22:07 Permalink

I am the Alpha and the Omega.  I know the error.

In "The General Theory of Employment, Interest and Money", pg. 81 (New York: Harcourt, Brace and Co.): John Maynard Keynes gives the impression that a commercial bank is an intermediary type of financial institution (non-bank), serving to join the saver with the borrower when he states that it is an: “optical illusion” to assume that “a depositor and his bank can somehow contrive between them to perform an operation by which savings can disappear into the banking system so that they are lost to investment, or, contrariwise, that the banking system can make it possible for investment to occur, to which no savings corresponds.”

In almost every instance in which Keynes wrote the term "bank" in his General Theory, it is necessary to substitute the term non-bank in order to make Keynes’ statement correct.

This is the source of the pervasive error that characterizes the Keynesian economics, the Gurley-Shaw thesis, the elimination of Reg Q ceilings, the DIDMCA of March 31st, 1980, the Garn-St. Germain Depository Institutions Act of 1982, the Financial Services Regulatory Relief Act of 2006, the Emergency Economic Stabilization Act of 2008, sec. 128. “acceleration of the effective date for payment of interest on reserves”, etc.

Take the “Marshmallow Test”: (1) banks create new money (macro-economics), and incongruously (2) banks loan out the savings that are placed with them (micro-economics).

See Steve Keen: "Banks don’t “intermediate loans”, they “originate loans”.




Salmo trutta Tue, 06/12/2018 - 22:14 Permalink

Steve Keen knows a credit from a debit.

http://bit.ly/2GXddnC (at end of article)

"Banks don’t “intermediate loans”, they “originate loans”.

"The fallacy in their thinking is easily demonstrated by looking at the two types of lending – from one non-bank agent to another (Loanable Funds or LF) and by a bank to a non-bank (Bank Originated Money or BOM as an accountant might call it)."

Keen: "A 'Loanable Funds' loan simply shuffles existing money from one person’s bank account to another: no new money is created (row 1 in Table 2). A “Bank Originated Money” loan creates a new asset for the Bank, and creates new money as well – which the recipient then spends."

Lending by the commercial banks is inflationary (increases both the volume and turnover of new money). Lending by the non-banks is non-inflationary, other things equal (results in the transfer of title to existing bank deposits within the payment’s system, a velocity, Vt, relationship).

From the standpoint of the payment’s system, the source of time/savings accounts is demand deposits, directly or indirectly via the currency route (never more than a short-run situation), or through the DFI’s undivided profits accounts. Consequently the expansion of savings-investment accounts, per se, adds nothing to total bank liabilities, assets, or earnings assets. Therefore the expansion of monetary savings, bank-held savings, adds nothing to N- gDp.

See Philip George: “The riddle of money, finally solved”


Commercial banks pay for their new earning assets with new money.
A theoretical explanation was advanced in 1961 to support this conclusion. It was based upon the following assumptions:

(1) That monetary policy has as an objective a certain level of spending for N-gDp (sound familiar?, viz., N-gDp targeting?), and that a growth in time/savings deposit classifications will not, per se, alter this objective. And that a shift from demand to time deposits will also not, per se, alter this objective;
(2) That a shift from demand to time deposits involves a decrease in the demand for money balances and that this shift will be reflected in an offsetting increase in the velocity of money.
(3) To prevent the increase in Vt from altering the desired level of spending for N-gDp, it is necessary for the FRB-NY trading desk to prevent the diminished money supply brought about by the shift from demand to time deposits from being replenished through an expansion of bank credit;
(4) To prevent the expansion of bank credit requires that the trading desk “mop up” al excess reserves created by the shift from demand to time deposit classifications.

As hypothesized: It seems quite probable that the growth of time deposits shrinks aggregate demand and therefore produces adverse effects on N-gDp. I.e., it seems highly improbable, and in contradiction to Professor Chandler’s theoretical analysis: that the stoppage in the flow of these funds is entirely compensated for by an increased velocity of the remaining demand deposits.

I.e., all monetary savings, commercial bank-held savings, are from a macro-accounting perspective, un-used and un-spent, lost to both consumption and investment, indeed to any type of payment or expenditure.

Take the “Marshmallow Test”: (1) banks create new money (macro-economics), and incongruously (2) banks loan out the savings that are placed with them (micro-economics).

As professor Lester V. Chandler originally theorized back in 1961, viz., that in the beginning: “a shift from demand to time/savings accounts involves a decrease in the demand for money balances, and that this shift will be reflected in an offsetting increase in the velocity of money”.

His conjecture was correct up until 1981 – up until the saturation of financial innovation for commercial bank deposit accounts I.e., the saturation of DD Vt according to Marshall D. Ketchum (Professor at the Chicago School):

"It seems to be quite obvious that over time the “demand for money” cannot continue to shift to the left as people buildup their savings deposits; if it did, the time would come when there would be no demand for money at all”

Thus, as Dr. Leland J. Pritchard, Ph.D. Chicago - Economics, M.S Statistics, Syracuse predicted after the passage of (1) the DIDMCA of March 31st 1980, i.e., coinciding with his prediction of the (2) "time bomb", the widespread introduction of ATS, NOW, & MMDA accounts, that money velocity had reached a permanently high plateau.

Professor emeritus Pritchard never minced his words, and in May 1980 pontificated that:

“The Depository Institutions Monetary Control Act will have a pronounced effect in reducing money velocity”.

This is the direct and sole cause of both secular strangulation and stagflation (business stagnation accompanied by inflation).

All savings originate within the payment’s system. Saver-holders never transfer their funds outside the payment’s system, unless they hoard currency, or convert to other national currencies, e.g., DFI, direct foreign investment. The source of commercial bank time/savings deposit accounts, is other bank accounts, originally non-interest-bearing demand deposits, directly or indirectly via the currency route (never more than a short-run situation), or through the DFI's undivided profits accounts.

The DFI’s time / savings deposits, e.g., negotiable CDs, rather than being a source of loan funds for the payment’s system, are the indirect consequence of prior bank credit creation. And the source of bank deposits (loans + investments = deposits, not the other way around), can be largely accounted for by the expansion of Reserve bank credit. That there is a close connection between aggregate bank credit and the aggregate volume of bank deposits can be verified by comparing the net changes in commercial bank credit to the net changes in total deposits for any given time period (R. Alton Gilbert was dimensionally confused).

When DFIs grant loans to, or purchase securities from, the non-bank public, they acquire title to earning assets by initially paying for them, by the creation, simultaneously and ex-nihilo, of an equal volume of new money - demand deposits -- somewhere in the payment’s system. For the payment’s system, the whole is not the sum of its parts in the money creating process.

Net changes in Reserve Bank Credit since the Treasury-Reserve Accord of March 1951 are determined by the FOMC.

Critically, the only way to activate voluntary savings (income not spent), is for the saver-holder to invest directly or indirectly, intermediated through, a non-bank conduit.

*Intermediated through* means that funds exchange counter parties, within the payment’s system, as no funds are ever extracted.

“Crunch time” is simply a macro-accounting error. The NBFIs are not in competition with the DFIs. The NBFIs are the DFI’s customers. Savings flowing through the non-banks never leaves the payment’s system (where all savings originate). There is simply an exchange, a transfer of title between counter-parties, to existing DFI liabilities, a money velocity relationship occurring within the payment’s system.

Paradoxically, this is somewhat like the physics principle of SUPERPOSITION:

“The general principle of superposition of quantum mechanics applies to the states [that are theoretically possible without mutual interference or contradiction] ... of any one dynamical system…”that every quantum state can be represented as a sum of two or more other distinct states.”

The capacity of a single bank to create credit as a consequence of a given primary deposit is identical to a financial intermediary. L = S (1-s). The superposition is that all primary deposits are actually derivative deposits from the system’s belvedere.

In other words, there is an increase in the supply of loan-funds, but no change in the money stock, a velocity relationship, where savings are matched with investments (a non-inflationary relationship). This process is the exact opposite of stagflation.

Unless savings are activated, put back to work, a dampening economic impact, a deceleration in money velocity, is engendered and metastases, resulting in secular strangulation. This is the source of the pervasive error that characterizes all developed countries slower growth rates.

The expiration of the FDIC's unlimited transaction deposit insurance in December 2012 is prima facie evidence, i.e., created the infamous "taper tantrum". Hence my “market zinger” forecast, a "predictive success”.

As Leland J. Pritchard, Ph.D., Economics, Chicago 1933, MS, Statistics Syracuse, predicted:

“Savings require prompt utilization if the circuit flow of funds is to be maintained and deflationary effects avoided”…”The growth of commercial bank-held time “savings” deposits shrinks aggregate demand and therefore produces adverse effects on gDp”…”The stoppage in the flow of funds, which is an inexorable part of time-deposit banking, would tend to have a longer-term debilitating effect on demands, particularly the demands for capital goods.” Circa 1960

Salmo trutta Tue, 06/12/2018 - 22:17 Permalink

It's not M, or “near money substitutes”, it's Vt, or income not spent (the energy source / force), and the transactions velocity of re-circulation, which is indubitably, the peculiar issue.

Who’s to blame? Why the manager of the G.6 Debit and Demand Deposit Turnover Release, Ed Fry, and President Bill Clinton’s: “The Paperwork Reduction Act of 1995”.

“The legislation recognizes that the private sector is the engine of our prosperity, that when we act to protect the environment or the health of our people, we ought to do it without unnecessary paperwork, maddening redtape, or irrational rules”…”This Paperwork Reduction Act helps us to conquer a mountain of paperwork that is crushing our people and wasting a lot of time and resources and which actually accumulated not because anybody wanted to harm the private sector but because we tend to think of good ideas in serial form without thinking of how the overall impact of them impacts a system that is very dynamic and very sensitive to emerging technologies but which Government does not always respond to in the same way.”


Frictionless / expeditiously propagated financial perpetual-motion, involves putting savings uniformly and efficiently back to work (connecting pooled savings with borrowers), productively transferring and completing the circular flow of income [uni-directional “Brownian ratcheted” mechanical inputs and outputs, savings “prevented from rotating in the opposite direction”, viz., the opposite of dis-intermediated], as opposed to the destruction of funds (backwards résistance), or savings being frozen (all DFI held savings are un-used and un-spent), and dissipated in financial investment (the transfer of title to goods, properties, or claims thereto), which perpetrate leakages from the main income stream.


The Fed uses more money as its carrot, Instead of higher money velocity as a circuit analogue.

MusicIsYou Tue, 06/12/2018 - 22:19 Permalink

No, actually China is not going to have the financial problems people keep making believe China is going to have. The reason China won't have the housing problems the U.S had is because China has only begun the petro-yaun, and only begun to have the yaun slide into a larger reserve currency rating. But the dollar has had that status for decade upon decade.

MusicIsYou Tue, 06/12/2018 - 22:20 Permalink

No, actually China is not going to have the financial problems people keep making believe China is going to have. The reason China won't have the housing problems the U.S had is because China has only begun the petro-yaun, and only begun to have the yaun slide into a larger reserve currency rating. But the dollar has had that status for decade upon decade.

MusicIsYou Tue, 06/12/2018 - 22:21 Permalink

No, actually China is not going to have the financial problems people keep making believe China is going to have. The reason China won't have the housing problems the U.S had is because China has only begun the petro-yaun, and only begun to have the yaun slide into a larger reserve currency rating. But the dollar has had that status for decade upon decade.

MusicIsYou Tue, 06/12/2018 - 22:30 Permalink

It's a pretty bad testimony to how fcked up U.S money policy is when the U.S can have huge housing problems while also having the goto Reserve currency, and the goto petro-dollar. It just really tells you how many filthy thieves there are.

roddy6667 Tue, 06/12/2018 - 22:32 Permalink

It's not the same thing in China. 82% of homeowners own outright--no mortgage. Most house purchases are still cash deals. Also, the average Chinese citizen is in a much better financial situation, saving 36% of his income. The home buyers who are doing things American style with low down payments and maxing out their credit with mortgages is very small, although Doom Porn websites like to make it seem different.

roddy6667 Mazzy Wed, 06/13/2018 - 00:50 Permalink

Why do you think these are make-work projects? China has about 1.4 billion people. Over half live in what would be called shanty towns or slums. They are waiting for a new, modern home, with Western style bathrooms and kitchens, running hot water, A/C, city-supplied heat (not a coal stove), and a lot of other things. New housing is in big demand and homes sell as fast as they build them. I don't know why you believe this bullshit on Doom Porn websites. Why don't you get a passport and look for yourself?

In reply to by Mazzy

Ghost who Walks Tue, 06/12/2018 - 22:50 Permalink

The question comes down to can China run a housing scheme that seems to be un-profitable to the lenders?

The answer is maybe.

China's expansion has been based on a credit expansion, that has funded all sorts of economic and non-economic return projects. Michael Pettis in particular has covered the economic thinking of the Governments involved and analysed the impact on future China growth.


As Pettis is based in Beijing and has regular contact with China's senior economic thinkers, I give him credit for insights into why China might be different to the West.

In this interview he lays out a timetable for when Xi will start to deal with the non-performing loans, which is probably in the next couple of years, now that he has centralised power.

Pettis says that to solve the problem requires re-allocating GDP away from the Provincial Governments and the Elite, to the broad population. Hence the requirement for Xi to centralise and build his powerbase  to overcome the resistance of the beneficiaries of the current status quo.

If you read Charles Hugh-Smith, he says the same problem exists in America;



my new username Tue, 06/12/2018 - 22:54 Permalink

The population is being moved to urban centers en masse, just as the demographic crash starts. In 30 years, the countryside will be abandoned - and the muslims will occupy. In 100 years China will have lost its western lands.

Ghost who Walks my new username Tue, 06/12/2018 - 23:04 Permalink

I think you under-estimate Chinese officials in the CCCP.

They are at least as active as any US Political party with focus groups and market research. I believe that the One-Child policy has already been relaxed for Farmers who have a daughter. The problem you have identified takes time to develop, and the solutions also require time to implement. I think it is too early to make any predictions when dealing with a group that has a long-term focus, and a reasonable record of achievement with change management.

In reply to by my new username