Good Summary of China's Risks and Obstacles

It may be too late for the Chinese government to stop its housing bubble from popping
The problem is that once prices start falling, potential homebuyers get skittish about a further drop. And with good reason: downpayments and mortgages generate around 40% of developers’ investment capital. Slumping sales means developers need cash so desperately that they’ll cut prices to the bone.

......The research firm JL Warren Capital recently made the case that the upshot of China’s one-child policy is a birth rate that peaked in 1987, meaning that there are simply too few twenty-something couples forming families to buy the existing supply of new homes.

......As for the drop in mortgage lending, BofA/Merrill Lynch’s Cui notes that banks make much tidier profits from selling products tied to shadow lending—high-yielding off-balance-sheet investment products—than they do mortgage loans.

......No, the problem isn’t the amount of credit......Take cement, for example. In the last decade, China has invested so heavily in cement factories that it now has more cement capacity than the rest of the world combined, according to The Economist Intelligence Unit’s Robert Ward. In 2011 and 2012 alone, China churned out more cement than the US did in the entire 20th century (paywall). You can bet that all those cement companies aren’t making money now; what’s keeping them afloat is fresh bank credit and property investment.

What will happen to them as property investment peters out? Loosening credit could offset that. But that will mean banks will pump even more credit to sectors that are already producing too much to begin with, siphoning much-needed credit away from non-state companies that desperately need capital. Plus, opening the credit floodgates will likely drive property prices even higher than they had been.

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