China's Credit Bubble

China's latest credit cycle is likely coming to an end less than one year after it kicked off. May lending growth may be fine, but perhaps only because the Big 4 force fed credit in the last week of the month. Either way, a year of monetary emissions has resulted in the Chinese yuan approaching a 52-week low and land/housing bubbles in multiple cities around China.
So, rising housing prices accomplice, who is behind it? Turning to monetary policy, Wu Xiaoling said that from 1949 - 2008 National Credit increased 30 trillion, and from 2009 - 2015, increased 63 trillion. That is seven years more than double the previous thirty. The money supply is too much, it did not bring price increases to ordinary goods, it lifted asset prices, and in China mainly home prices.

...In addition to buy a house requires a lot of credit, but also a lot of credit to buy land for housing for the job , one-third of its own funds to developers leveraging other funds two-thirds of buyers at 20% down payment as leverage other bank loans. Open credit funds, the huge private capital to follow up, forming a leverage effect, so that a large number of urban housing prices soared overnight.

...He explained that, although the real estate bubble had serious, but if it is not leveraged bubble, harm is not particularly large, but according to the current situation of view, it is necessary to suppress the growth of leveraged bubble as soon as possible. "Leverage bubble is extremely dangerous!" Liu Yuanchun stressed.
The latest credit cycle is needed to keep the bubble going:
Currency issued - enough credit - the central enterprises rush - Leverage up - rising land prices - soaring housing prices - a new round of forced currency issuance, this is a terrible positive feedback loop, accelerating the property bubble. Last year, the stock market followed this logic, but we said that the stock market is pricing the toxic assets at a significant departure from value, this time the toxic assets are real property.

China's latest credit cycle began in 2015, since that credit expansion accelerated to unprecedented levels, M1 money supply growth rate is now 22.9%. Our country is indirectly financing the financial system, autonomous bank lending, at his own risk, responsible for profit or loss. So, who gets credit, who do not, basically the banks have the final say.

The current overall excess liquidity, companies don't worry about loans, they get together and choose to invest in the real estate market, furthermore the government is taking on all the risk, the developers do not need to think about it at all.

Most of the funding is from the banks, at worst the banks get the land. Naturally, land prices are not taken seriously. Especially the central enterprises, state-owned enterprises, its unique state capital guarantees, collateral and other advantages are abundant, does not need to even consider the cost or the price of land.

Japanese real estate bubble blowing four or five years, and was finally broken in 1989. American subprime bubble blowing five or six years, finally broke in 2007.

House prices still must rise, but they will not always rise. In the "Dream of Red Mansions" Wang Xifeng said: "Even if you build a thousand league awning for it, every banquet must come to an end."
iFeng: 泡沫真的要上天 房价上涨背后帮凶竟是他!

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