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Chinese "technocrats" created probably the largest real-estate bubble yet by focusing on short term GDP growth numbers. Look up china ghost cities. People bough

Chinese "technocrats" created probably the largest real-estate bubble yet by focusing on short term GDP growth numbers. Look up china ghost cities. People bought in to these as retirement/savings to avoid their constant inflation (which is increasing). They are in a situation where they can't inflate that bubble anymore because the inflation would get out of hand, and are willing to risk economic downturn to slow it down (that should tell you how serious it is).

wisty 15y ago
Local governments make a lot of money (both formal revenue and informal bribes) off real estate development. The states / cities can't balance the budget without selling housing plots to developers. And the banks have low interest, while inflation is insane (due to both government monetary policy, and the good inflation of wage growth - both of which encourage development at the cost of encouraging bubbles). Then there's the cultural preference for boys and the one child policy leading to more boys than girls, so the girls only want to marry boys with houses, encouraging parents to buy a house for their son. On the other hand, China's deposit requirements for houses are draconian. Think 40% down. And the national government has been screaming bloody murder at house prices for quite some time, trying to ram all sorts of measures through to control house prices. Also, some of the ghost cities are kind of fictitious. I know one which was built on edge of a growing city, which rapidly filled up. There were some more developments in cheaper locations that looked a little iffy, but the one on the international news sites wasn't really a ghost city. What they really need to do is widen their tax base. Income taxes are a joke, because people lie on their tax returns. Taxing the sale of houses creates perverse incentives. One option (which fits in well with their Marxism and focus on productivity) is to tax land. That would keep house prices down, and create a fair tax base - no more millionaires living in mansions paying no tax because they have better accountants. They also need to reform government spending, and make the local governments more honest, but that's easier said than done - they are already executing bad eggs left right and center.
- moonchrome 15y ago
  >On the other hand, China's deposit requirements for houses are draconian. Think 40% down. Think about that, it's even worse. In the US if your mortgage goes bust your bank takes more loss than in China where it's the home owner. And the home owners were regular middle class people trying to save their money from inflation AFAIK. Now it's likely to lose >30% value overnight because of the bubble. They had real-estate prices comparable to Europe and US with income nowhere near that so the IMO bottom is very deep. You don't think that's going to cause unrest ? There are already protests about this. Add to that protests about inflation and other social problems China faces. I don't think it's going to end well, and that's going to have huge implications for the world economy. And potential unrest are just going to accelerate flight of capital caused by increasing production costs.

wisty 15y ago

Local governments make a lot of money (both formal revenue and informal bribes) off real estate development. The states / cities can't balance the budget without selling housing plots to developers. And the banks have low interest, while inflation is insane (due to both government monetary policy, and the good inflation of wage growth - both of which encourage development at the cost of encouraging bubbles). Then there's the cultural preference for boys and the one child policy leading to more boys than girls, so the girls only want to marry boys with houses, encouraging parents to buy a house for their son. On the other hand, China's deposit requirements for houses are draconian. Think 40% down. And the national government has been screaming bloody murder at house prices for quite some time, trying to ram all sorts of measures through to control house prices. Also, some of the ghost cities are kind of fictitious. I know one which was built on edge of a growing city, which rapidly filled up. There were some more developments in cheaper locations that looked a little iffy, but the one on the international news sites wasn't really a ghost city. What they really need to do is widen their tax base. Income taxes are a joke, because people lie on their tax returns. Taxing the sale of houses creates perverse incentives. One option (which fits in well with their Marxism and focus on productivity) is to tax land. That would keep house prices down, and create a fair tax base - no more millionaires living in mansions paying no tax because they have better accountants. They also need to reform government spending, and make the local governments more honest, but that's easier said than done - they are already executing bad eggs left right and center.

moonchrome 15y ago
>On the other hand, China's deposit requirements for houses are draconian. Think 40% down. Think about that, it's even worse. In the US if your mortgage goes bust your bank takes more loss than in China where it's the home owner. And the home owners were regular middle class people trying to save their money from inflation AFAIK. Now it's likely to lose >30% value overnight because of the bubble. They had real-estate prices comparable to Europe and US with income nowhere near that so the IMO bottom is very deep. You don't think that's going to cause unrest ? There are already protests about this. Add to that protests about inflation and other social problems China faces. I don't think it's going to end well, and that's going to have huge implications for the world economy. And potential unrest are just going to accelerate flight of capital caused by increasing production costs.