Economists fear China's property bubble may burst
April 15, 2004
Beijing - Chinese real estate developers have been pouring money into new investments at a frantic pace, fueling concerns a bubble is already a fact and that a hard landing may be unavoidable.
The government said Thursday investment in real estate soared 41.1 percent in the first quarter of the year, despite months of government efforts to stem the steady stream of capital flowing into the property market.
"It's a bubble. Every bubble has to burst. It's a matter of time," said Andy Xie, a China economist with Morgan Stanley in Hong Kong. "If the government doesn't do anything, the bubble becomes bigger."
With thick forests of cranes hovering over its largest cities, it is a matter of little dispute that China is experiencing one of history's big building booms.
"The market is heating up, but I'm not sure whether it's overheating," said an executive with real estate developer SOHO China, who gave his surname as Zhang. "Growth in investment is fast, but sales are also pretty good."
Taiwan and Hong Kong investors originally led the way in the ongoing real estate craze.
But they have been joined quickly by Chinese developers and officials who have either been bribed or are eager to see local economies bloom.
The radically intensified level of activity helped push fixed-asset investment, which includes real estate investment as a key component, to 53 percent growth in the first two months.
Although the figure has slowed somewhat to 43 percent in the first quarter, economists worry that a tough landing is simply not possible from such heights.
"It is extremely difficult, if not impossible, to guide fixed investment from 50 percent annual growth at present to the trend rate of about 10 to 12 percent," said Xie. "There are no precedents of achieving a soft landing with so much excess."
He warned if the bubble bursts, it could lead to "horrific financial losses," which will ultimately be shouldered by taxpayers, because the banks that have provided the property loans are nearly all state-owned.
Some economists argued overinvestment in real estate was a problem limited to certain pockets of especially high economic activity, such as Shanghai.
"The property sector is not overheated overall," said Chen Xingdong, chief China economist with BNP Paribas Peregrine in Beijing. "In some specific regions, there's a worry. But it's not a nationwide problem."
Nevertheless, China's policy makers are worried enough to consider a range of measures, including a hike in local currency interest rates, which has not been seriously on the agenda for a decade.
Short of that, they may adopt softer measures, such as a hike in the banks' reserve deposit ratio, or a crackdown on spendthrift local officials and lending officers.
"Administrative means in a non-market based economy are always very powerful, if they are determined enough to do it," said DBS Bank economist Chris Leung. - AFP
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