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2005-05-23 China-Japan-Koreas
China in for 'rude shock' over asset bubble
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Posted by too true 2005-05-23 10:46|| || Front Page|| [1 views since 2007-05-07]  Top

#1 China's real estate prices are high by historical Chinese standards, but remain far below prices elsewhere. In one of China's booming coastal cities, for example, a brand-new luxury 1400 sq ft 4 bedroom condo in the city's center can be had for about $50,000. In Manhattan, such a condo would be decades old and go for over a million dollars.
Posted by Zhang Fei">Zhang Fei  2005-05-23 11:32|| http://timurileng.blogspot.com]">[http://timurileng.blogspot.com]  2005-05-23 11:32|| Front Page Top

#2 Heh, I had a 3-bedroom 1400 sq ft apartment for 4500RMB/month ($543). Sadly, I'm not doing so well now, and I'm down to a 900 sq ft apartment for 2300RMB.
Posted by gromky 2005-05-23 13:23||   2005-05-23 13:23|| Front Page Top

#3 gromky: Heh, I had a 3-bedroom 1400 sq ft apartment for 4500RMB/month ($543). Sadly, I'm not doing so well now, and I'm down to a 900 sq ft apartment for 2300RMB.

That is steep for China. Typically, only foreigners will pay these kinds of prices. Locals can't afford it and therefore live in less posh areas. The typical rent for a one bedroom place (a little further out) will run perhaps 200RMB, or about $25 a month. This amount isn't as small as you might imagine, since the typical monthly wage for factory labor runs about 600RMB ($75) per month, or somewhat more depending on overtime.
Posted by Zhang Fei">Zhang Fei  2005-05-23 14:19|| http://timurileng.blogspot.com]">[http://timurileng.blogspot.com]  2005-05-23 14:19|| Front Page Top

#4 China may well have a property asset bubble, but I don't see it causing a decade long deflationary spiral as in Japan. Insolvent banks are the real issue. Any significant deflation will cause them to stop lending and call loans.
Posted by phil_b 2005-05-23 17:04||   2005-05-23 17:04|| Front Page Top

#5 phil_b: China may well have a property asset bubble, but I don't see it causing a decade long deflationary spiral as in Japan. Insolvent banks are the real issue. Any significant deflation will cause them to stop lending and call loans.

I doubt that loans will be called in when the bubble bursts. Note that the government has been issuing bonds hand over fist to dry up the money supply (caused by buying dollars from exporters and issuing yuan to them). The money from these fundings will be put towards covering the expense of bailing the banks out. The government has done this pretty much on a rolling basis, for bad loans made to subsequently-closed state-owned enterprises.

I don't see bank bailouts ending. As long as the government has a printing press and powers of taxation, it can rescue the banks. Why? Because they're not really rescuing the banks - they're rescuing depositors, and by extension, safeguarding their own jobs.
Posted by Zhang Fei">Zhang Fei  2005-05-23 17:43|| http://timurileng.blogspot.com]">[http://timurileng.blogspot.com]  2005-05-23 17:43|| Front Page Top

#6 Zhang, you over-estimate the power of governments to stop deflation once a bubble bursts. Its a standard response to pump liquidity into the system in these situations but all it really does is stop deflation going to excess (a panic). Asset prices will deflate back to their 'proper' price come hell or high water. The extent to which loans are called, banks stop lending, or borrowers stop borrowing, is immaterial, the net effect is the same liquidity decreases and asset prices fall.

Otherwise Bloomberg has an article today on the risks of another 1997 type Asian financial meltdown. I worked for an Asian bank at the time and the response was to sharply reduce lending to anything they considered remotely risky.
Posted by phil_b 2005-05-23 18:45||   2005-05-23 18:45|| Front Page Top

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