Chinese real estate has been booming. Since 2000, year estate investments grew 200% in China. The Chinese Claymore/AlphaShares China Real Estate ETF (TAO), which tracks Chinese Real Estate went up more tan 70% since January 2009.
Now add to that:
1. The demographic nightmare that China will soon be facing.
2. The global financial crisis which continues and China which will see little choice but to loosen its monetary policy even further, slashing Chinese economical growth and result in massive unemployment, which will lead to social instability.
If there is one thing that Europa underestimates than it’s the impact of a bursting Chinese Real Estate bubble. The bubble has grown mainly on the residential side of teh market, but with Beijing’s 4 trillion yan or 586 billion USD stimulus package, the bubble also started growing on the commercial side in 2009. Remember that China pumped worth 12,9% of its GDP in stimulus packages in 2009. By way of comparison: Brazil invested less than 2% of its GDP in stimulus packages to support growth.
With 70 percent of real estate investment in China coming from bank loans, a dramatic drop in land values could send shock waves throughout the economy.
Stratfor published last week an excellent report on the Chinese Real Estate bubble, you can read it here.
Especially in Beijing and Shangai the situation is dramatic. In both cities, real estate activities have accounted for more than 30% of the GDP since 2000. In Shangai real estate activities even contributed more than 50% of the GDP. A GDP which is sustained for more than 50% on an inflated real estate bubble…
No doubt there is a correction ahead on the stock exchange, but when one adds thhe extent of the inflated China real estate bubble, one could wonder how big the downward slope ahead could really be.
Tags: china real estate bubble
