If Prices Drop 40-60%, There Will Be A Financial Crisis

In media reports about housing price cuts, the "one-time" or "one off" term usually refers to a big price cut designed to bring in buyers. As I read it then, in the article below (Google translated) Zong Liang is not saying a 40-60% decline in the market will cause a financial crisis; rather once developers start cutting new home prices by 40 to 60%, there is going to be a financial crisis. The distinction is important because developers have already cut 20% or more in some areas, whereas the overall housing price index has not even peaked yet in the majority of cities, and where it has peaked the declines are about 0.1% or 0.2% from the peak.

宗良:如果房价一次性下跌40%—60% 将发生金融危机
Bank of China International Finance Research Institute deputy director Zong Liang, on May 21 at the China International Economic and Exchange Center Section 59 "Economic month to talk about", said the short term, China's financial risks point mainly in real estate, local government debt, bank credit and risks three aspects of the shadow banking system.

Zong said that if house prices fell by one-time 40% -60% level, and that the financial crisis will occur. Therefore, we must make adjustments on the real estate market to remain relatively stable. China is also being done on the structure of the current reasonable adjustments, the future development of ideas is essential to meet the combat speculation.

"Local debt is an important part of the financial problems of land, because there are some problems of land premium system, which is similar to my treat others pay, resulting in local fiscal revenue in the land of the annual financial accounts for a high proportion of This system will definitely push prices higher . "Zong said.

About the risk of bank credit, the shadow banking system, Zong noted that the financing system of Chinese society is divided into three blocks: new loans, the shadow banking system, direct financing. "The real direct financing direct financing must be done, but the middle borne by financial institutions does not ideal."

Zong noted that the medium and long term, China's financial risk points also focused on foreign assets, corporate debt, social security debts and entrusted loans related to shadow banking, trust, private loans, guard because the local systemic risk of default, which is the bottom limit.

In order to prevent risks, to achieve the sound development of the whole economy, Zong gives six suggestions:

First, to achieve the transformation of economic development. Achieve economic transformation is very important, it does not mean do not emphasize "development", the correct understanding should be in transition and development, developing as Transformation.

The second is the development of diversified financing channels for local governments. China's local debt settlement, can take a wide range of ways, some municipal bonds, part of the government financing platform, part of the public-private partnership, the so-called PPP, through the combination of a variety of ways.

The third is to optimize the financing structure, breaking the rigid payment, reduce financing costs, effectively support the real economy.

Fourth Estate modest adjustments. Overall modest adjustments in some areas showing up and down, to maintain pressure in the state, so the real needs are met.

Fifth, the need to optimize our infrastructure, urbanization and agricultural modern technology are required to implement the transformation and upgrading.

Six is ​​properly solve the pension problem

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