High Real Estate Prices Harming China's Competitiveness, Shenzhen Risks A Blowup

Yue Tao of the Shenzhen Economic Observer says Shenzhen's housing market is on the cusp of a reversal. Policy makers will not intervene to save a first-tier market, in fact they probably would like to see prices fall to keep total manufacturing costs low as global competition intensifies.

First, there's the credit bubble fueling speculation.

Aside from 2009, when the government launched the 4 trillion yuan stimulus, Shenzhen never saw its mortgages increase by more than 50 billion yuan.

In 2014, mortgages increased 45 billion yuan to a total of 529.9 billion.

In 2015, mortgages increased 215 billion yuan to 742 billion.

Last year's figure was also more than double the 2009 total.

This was not the power of lots individual home buyers, but speculators jumping into the house flipping market. Yue says this risks a daisy chain explosion:
Nearly two months of shrinkage, not enough to make leveraged capital flee. The next credit crunch and confirmed expectation will usher in the real adjustment, and then a chain-style warehouse explosion.
A decline in the market is more likely in first-tier cities because the goal was not to drive up first-tier real estate, but to spark sales in lower-tier cities and boost the whole economy:
2, the central hope is the amount, not the price. Cities starting up is a means, not an end. Really care about is producing real estate entity can reduce inventory. In order to benefit home building materials, electrical appliances, 90% of the third- and fourth-tier cities must revitalize.
The article goes on to reference the recent report from Liu He on rising manufacturing competitiveness from developed countries. Among the costs harming China is rapidly rising home prices:
4, the media recently forwarded Liu He (who has been credited as Xi's closest economic adviser), article "Manufacturing will be raised to the national strategic level." Analysis of the developed countries and then manufacturing strategy will intensify international competition for investment, the reference to "suppress parts of the real estate prices rising too fast momentum, reduce production costs and staff cost of living" in the proposal.
The report is here: 刘鹤:发达国家再制造业化战略将加剧国际投资竞争

Yue finishes by saying the potential for a sharp reversal in the market begins in the next two months. If it happens, this time it will last longer than before, and a rebound won't begin until 2018.

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