China’s housing market seems to be facing the threat of a major downturn. That is the only conclusion to be drawn from the rising sense of concern being expressed by policymakers and the official media.
Last year, China’s Academy of Social Sciences estimated that “there are 64.5 million empty apartments and houses in China’s urban areas“. The figure came from a study of electricity usage, and suggested there has been a large element of speculation behind the recent run-up in prices.
Now, this has been confirmed by Qi Ji, Vice Minister of Housing, who has warned that “China’s rising property market in the past few years was driven in part by ‘unreasonable’ demand from speculators.
Similarly, Premier Wen Jiabao has said “China will ‘resolutely’ press ahead with controls on the property market to curb speculation“. He added that the government will “‘severely punish’ irregularities in the real-estate market, implement differentiated credit and tax policies, and hold local officials accountable for maintaining stable home prices“.
This has led ratings agency, Fitch, to warn that China now faces a “60% risk of a banking crisis by mid-2013 in the aftermath of record lending and surging property prices”.
Fitch also seems to share the blog’s long-expressed concern that Chinese banks “fuelled record property-price gains by extending a record 17.5 trillion yuan ($2.7 trillion) of loans over 2009 and 2010 under the stimulus program that propelled the nation through the financial crisis“.
China’s housing bubble has been a main driver for chemical and polymer demand, as was the US housing bubble from 2003-7. The blog therefore continues to worry that the government’s need to deflate the bubble could lead to a similar end result.