CHINA heading for FINANCIAL CRISIS!

Posted in the China Forum

LOVE CHINA DESTROY CCP

Port Moody, Canada

#1 Mar 18, 2013
March 18, 2013, 5:20 PM Economists: China Mirrors U.S. on Eve of Financial Crisis

China Real Time Report1

The same three warning lights that preceded America’s real estate crash and financial crisis are now flashing over China, two economists say, leaving the government limited time to get out of trouble.

In a research note published on Saturday, Nomura economists Zhiwei Zhang and Wendy Chen outline the way that elevated property prices, a rapid build-up of leverage and a slide in the country’s potential growth rate could lead to a systemic crisis.


Reuters House prices in the U.S. racked up an 84% rise between 2001 and 2006, Mr. Zhang and Ms. Chen say, citing the Case-Shiller housing price index. The Nomura economists have their doubts about China’s official index, which shows a “rather benign” 113% rise in the major cities from 2004 to 2012. They argue that it is too broad, including older, lower-quality property across the nation. By contrast, a recent academic paper taking into account these quality differentials found prices climbed 250% from 2004 to 2009, they say.

“The government obviously recognizes the risks in the property sector,” Mr. Zhang and Ms. Chen write.“It has introduced a series of progressively tighter policies to contain property prices over the past several years… The pattern has been for house prices to initially dip after tightening policies are introduced, then to rebound, which suggests that the risks have not been mitigated.”

...
LOVE CHINA DESTROY CCP

Port Moody, Canada

#2 Mar 18, 2013
...
Local governments, which rely on land sales as their main source of revenue, could be hit as hard as property developers by a real estate crash. The problems would quickly find their way into the banking system – 14.1% of outstanding bank loans are to local government financing vehicles, and 6.2% are to property developers, Nomura’s economists say.

They do think the country still has time to avoid a systemic financial crisis, as long as the government is not afraid to start tightening now. That will come at a cost in terms of this year’s growth outlook – but growth could still be as high as 8.1% in the first half of the year and 7.3% in the second half, Mr. Zhang and Ms. Chen estimate. Early tightening could lead to a manageable number of defaults, they think.

The alternative would be a continuation of loose policy and growth of over 8% this year, followed by a crash perhaps as early as 2014. Contagion would quickly spread through the system, Mr. Zhang and Ms. Chen think, forcing the government to step in and bail out the banks or local governments, perhaps selling off public assets to deal with the mess.

Finally, adding to the likelihood of a crisis is China’s declining potential growth rate. It is not easy to calculate this number, which represents the maximum speed the economy can grow without generating excess inflation, but even analysts more optimistic than Nomura’s agree that it’s falling, driven by factors such as a shrinking working-age population. That gives China’s policymakers a lot less leeway to stimulate the economy than they have enjoyed in the past.

“Financial crises often follow technology revolutions or so-called economic miracles, because investors and policymakers start to overestimate the potential growth of the economy,” write Mr. Zhang and Ms. Chen.“Policymakers may misinterpret a structural slowdown in potential growth as cyclical and utilize expansionary policies to boost growth… planting the seeds for overheating and an eventual painful correction.”

– Richard Silk
LOVE CHINA DESTROY CCP

Port Moody, Canada

#3 Mar 18, 2013
"House prices in the U.S. racked up an 84% rise between 2001 and 2006, Mr. Zhang and Ms. Chen say, citing the Case-Shiller housing price index. The Nomura economists have their doubts about China’s official index, which shows a “rather benign” 113% rise in the major cities from 2004 to 2012. They argue that it is too broad, including older, lower-quality property across the nation. By contrast, a recent academic paper taking into account these quality differentials found prices climbed 250% from 2004 to 2009, they say."

Tree times the size of the bubble that burst in the US?
CCP is DYING

Port Moody, Canada

#4 Mar 18, 2013
“Financial crises often follow technology revolutions or so-called economic miracles, because investors and policymakers start to overestimate the potential growth of the economy,”

Even worse when such hubris is further fueled by a national industry of lies and misinformation to support an illegitimate dictatorship, as in China.
LOVE CHINA DESTROY CCP

Surrey, Canada

#5 Mar 18, 2013
Ultimately, it is the "special needs" of the Chinese Communist Party dictatorship that will do huge harm to China, yet again.
CCP is DYING

Port Moody, Canada

#7 Mar 20, 2013

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