A little bit of China stimulus goes a long way in housing

Economic growth

SHARE THIS STORY

China housing Oct13It was only a “mini-stimulus” that was delivered by China’s new leaders in July.  Well, thank goodness it wasn’t more, to judge by the above chart from Albert Edwards at SocGen.  It shows how house price inflation has jumped in 69 of China’s 70 main cities between March and September:

  • In March (orange column) inflation was averaging between 2% – 4% versus March 2012
  • By September (red) it was averaging between 6% – 9% versus September 2012
  • Prices in hot spots such as Beijing and Shanghai were up 20%
  • Only Wenzhou saw falling prices, now down for 23 months as its private sector slows

The problem is a mix of naiveté, greed, and the lack of a comprehensive state-run social security system.

The naiveté comes from the fact that China only began to develop a private housing market in 1998.  Until then, all urban housing was built and allocated by the state.  There was no word in Chinese for ‘mortgage’.  In rural areas, peasants built homes on land allocated by the state.  So people have no history to guide them.

The greed comes from the fact that house prices have never fallen in the past 15 years.  There have been a couple of brief slowdowns in 2008 and 2012, but the government quickly responded with measures to support the market.  So most people now assume prices will continue to double every two to three years.

The lack of basic social security, coupled with the ‘one child policy’ means young men wanting to marry are expected to own a home.  “Housing, a stable income and some savings” are ‘must haves’ when meeting the prospective father-in-law.  With only 100 women for every 117 men, he can insist that the groom is able to support his daughter.

Thus the supposed ‘mini-stimulus’ has caused prices to race ahead again.  Everyone believes that the government would never let prices fall.  The only problem is that those of us living outside China know this is wishful thinking.  Either the government will finally take firm measures to crash the market, fearing major financial instability and social unrest.  Or the bubble will pop of its own accord.

Meanwhile, for the moment, the situation remains out of control, as the Financial Times noted last week:

“Property prices have almost quintupled in leading Chinese cities over the past  decade and they are perhaps the biggest single threat to the country’s economic and social stability. For the economy, the fear is that China is in the middle  of a property bubble that will eventually burst and trigger a financial crisis.  For society, frustration about housing prices is widespread and their continued rise only fuels more discontent.”

PREVIOUS POST

Lessons from Grangemouth - how Europe can revive its industrial base

29/10/2013

Sometimes a crisis can concentrate minds on one key issue.  This was certainly ...

Learn more
NEXT POST

US becomes 'The Snail Economy' as its population ages

31/10/2013

There comes a moment in a debate when the argument is clearly won, and discussio...

Learn more
More posts
World moves from Denial to Anger, as the Paradigm of Loss moves forward
07/06/2020

I have been warning about the Covid-19 risk since early February, and in April suggested here that: ...

Read
The New Normal for global industry
31/05/2020

The global chemical industry is the third largest sector in the world behind agriculture and energy,...

Read
Debt, deflation, demographics and Brexit set to challenge London house prices
17/05/2020

London property websites haven’t used the word “reduced” for many years. But it...

Read
The bill for two decades of doomed stimulus measures is due
03/05/2020

The Financial Times kindly made my letter on the risks now associated with central bank stimulus the...

Read
Local supply chains replace global trade as world starts to “do more with less”
26/04/2020

Something quite dramatic is happening in the global economy.  Of course, Wall Street analysts still...

Read
Financial markets enter their Convulsion phase
19/04/2020

Many companies and investors are still comparing today’s downturn to the 9-month hiccups seen afte...

Read
World risks moving from Denial into Anger as the Paradigm of Loss moves forward
12/04/2020

The head of the IMF has warned again on the likely scale of the economic depression ahead: “Gl...

Read
The world has wasted 3 months – there is little time now left to avoid a Covid-19 catastrophe
05/04/2020

It is now 3 months since China’s state television broadcast the first news of the Wuhan virus,...

Read

Market Intelligence

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

Learn more

Analytics

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
X

Uncover exclusive industry upates from ICIS

Interested to uncover more articles related to this topic? Explore additional news, insights and intelligence, tailored to the markets you are interested in by accessing exclusive content from ICIS.com

DISCOVER MORE