China's property bubble massive

[dkf]

BEIJING — Jack Rodman, who has made a career of selling soured property loans from Los Angeles to Tokyo, sees a crash looming in China. He keeps a slide show on his computer of empty office buildings in Beijing, his home since 2002. The tally: 55, with another dozen candidates.

"I took these pictures to try to impress upon these people the massive amount of oversupply," said Rodman, 63, president of Global Distressed Solutions LLC, which advises private equity and hedge funds on Chinese property and banking. Rodman figures about half of the city's commercial space is vacant, more than was leased in Germany's five biggest office markets in 2009.
more on way

Beijing's office vacancy rate of 22.4 percent in the third quarter of last year was the ninth-highest of 103 markets tracked by CB Richard Ellis Group Inc., a real estate broker. Those figures don't include many buildings about to open, such as the city's tallest, the 6.6-billion yuan ($970 million) 74-story China World Tower 3.

Empty buildings are sprouting across China as companies with access to some of the $1.4 trillion in new loans last year build skyscrapers. Former Morgan Stanley chief Asia economist Andy Xie and hedge fund manager James Chanos say the country's property market is in a bubble.

"There's a monumental property bubble and fixed-asset investment bubble that China has under way right now," Chanos said in a Jan. 25 Bloomberg Television interview. "And deflating that gently will be difficult at best."

http://www.honoluluadvertiser.com/article/20100221/BUSINESS04/2210327/China+s+property+bubble+massive

[JVS]

1. This sounds like a disaster waiting to happen. Chinese workers get paid little already...

the consequences of an economic crisis in China could be not only a financial disaster but a humanitarian nightmare.

[Warpy]

6. I have friends who have taught there who have told me

there is a lot of unrest that is occurring as too many people who have worked the hardest have not shared in the boom, especially the people who grow all the food for the capitalists. There is also enough unrest over runaway pollution destroying drinking water and arable land that the government is finally starting to take notice.

All capitalist systems have been great at creating wealth but none has ever been any good at sharing that wealth fairly among all who worked to create it.

I don't know what will happen in a large financial crisis there, but I'm betting it will not be pretty. However, the Chinese are a very pragmatic people, so I hold out a little more hope that they will evolve back toward a more regulated, more mixed system as time goes on.

Their economy as it stands is unsustainable, just like ours was.

[JVS]

7. A famine does not require unrest to happen. A market driven famine is perfectly possible.

And allowing people to starve is perfectly pragmatic for those in charge.

[izquierdista]

10. Maybe the Communists will take over?

And the real ones will chase out the fake ones.

[Warpy]

12. That is a definite possibility

as it becomes clear that the capitalist experience caused more problems than it solved.

[Zynx]

2. A lot of people poo-pooing the chance of a bubble point to China's growth and say that's what

supports these sorts of aberrations. However, you would not have to go far back to find where people were citing our demographic trends, low interest rates, and constrained supplies to justify our housing prices. The same was true in Japan in the 1980s and the Asian Tigers in the mid-1990s. People always make the mistake of assuming strong growth and good fundamentals support extreme activity. In every single bubble, the fundamentals are usually fairly strong. The problem is that investors overestimate them.

[HeresyLives]

3. Some people live in hopes of a Chinese crash,

but since China has a couple of spare trillion sitting around, I wouldn't be too concerned.

[dkf]

4. Short sellers you mean?

They want anything to crash.

[HeresyLives]

5. That's one group that does.

;)

[proteus_lives]

8. This one is always on her knees for China.

[smiley_glad_hands]

9. +1 eom

[Prometheus Bound]

11. Foreign-exchange reserves are not wealth, HeresyLives.

And they can't be spent domestically to bail out developers, local governments, etc. If the govt were to take US$1 billion of them and convert them to yuan to buy a building, the Bank of China, etc would still end up with the US$1 billion after the conversion, so the foreign reserves would not change, but more yuan would have to be borrowed internally to support the bailout.

A Chinese property crash would be devastating, not just to the country but to me personally, so I certainly don't hope for it. But a bubble is a bubble. I've seen enough of them around the world. And I've never been wrong about the bubble, just about the timing of the burst.