China: Half Of All Loans Collateralised By Land, Real Estate

China, Company Strategy, Economics, Europe, European economy, US

By John Richardson

UShousepricesBEN Bernanke, who as at that time chairman of the Fed, warned in July 2007 that the cost of the US sub-prime crisis would amount to $100bn.

To be honest, we struggled to find a final estimate for the final total cost of the crisis, but these words from Wikipedia give just a flavour of how wildly Bernanke was off the mark:

The five largest US investment banks, with combined liabilities or debts of $4 trillion, either went bankrupt (Lehman Brothers), were taken over by other companies (Bear Stearns and Merrill Lynch), or were bailed-out by the US government (Goldman Sachs and Morgan Stanley) during 2008.

Government-sponsored enterprises Fannie Mae and Freddie Mac either directly owed or guaranteed nearly $5 trillion in mortgage obligations, with a similarly weak capital base, when they were placed into receivership in September 2008.

This, of course, just refers to some of the damage inflicted on the US economy during a crisis which became global.

Nobody has any idea how severe the final fall out will be from China’s real estate problems, but we worry that the consensus view is overly complacent.

Standard & Poor’s and Deutsche Bank, for instance, believe that the scale of the problem is little more than a cooling-off period as the rise in house prices moderate.

We are instead with George Magnus, an independent financial adviser to UBS, who wrote in this Financial Times article:

The Chinese property sector is in a recession. Market optimists insist it is going through an “adjustment” similar to previous property downturns.

A more sober view, however, is that because of unprecedented overbuilding, and leverage nurtured by the eruption of shadow banking, this downturn is both more serious and systemic. China is probably in the first stage of a denouement of the property- and construction investment-led growth model of the past 15 years. Financial markets are having trouble pricing the implications.

Property accounts for about 25% of capital investment, and roughly 13% gross domestic product. Incorporating associated industries, such as steel, cement, and construction machinery and materials, would raise the investment share of GDP to about 16%.

The intricate connections between residential and commercial property, shadow banking and vigorous credit creation raise financial instability risks. Direct commercial bank property loans form about a fifth of bank assets, but perhaps half of all bank loans are collateralised by property and land.


China Coal-To-Olefins: Water Not An Issue


By John Richardson BEN Bernanke, who as at that time chairman of the Fed, warned...

Learn more

China: GDP And Forgetting What You Already Know


By John Richardson BEN Bernanke, who as at that time chairman of the Fed, warned...

Learn more
More posts
Complacency, LLDPE and plastic waste: A collapse in demand

By John Richardson THE TECHNICAL people, those with PHDs in polymer science who have also spent year...

Iran-China PE trade and the sanctions: short term dip but long term big increase

By John Richardson IRANIAN exports of PE to China will likely suffer a temporary decline because of ...

Big jump in China PE imports points to destocking as demand prospects weaken

By John Richardson CHINA’S official PE imports and exports are finally out for January-September 2...

Major crude downside and upside risks for petchems

By John Richardson ONE of the biggest risks for petrochemicals producers has once again become oil p...

Negative Asian polyolefins margins show need for recession planning

ASIAN PE and PP spreads turned negative in October this year for the first time since the same month...

President Trump’s “very good” call with President Xi: Nothing changes

PRESIDENT TRUMP said yesterday that his discussions with President Xi Jinping were “moving along n...

Polymers industry risks sleepwalking into sustainability crisis

GLOBALLY some 75% of aluminium is recycled, 86% of steel and 40% of glass. Why shouldn’t the same ...

US GDP growth peaks as economic challenges build

A FULL two percentage points of US third quarter growth of 3.5% was down to stock building. Total US...


Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more


Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more