Bobbleheads Still Predicting Bursting Bubbles in China

It wasn’t that long ago (May 17) that I wrote about a Chicken Little-Henny Penny predicting a real estate bubble bursting in China and wrecking its economy as it did in the US in 2008.

Then a friend recently sent me another link to another “sky is falling” piece.  This time, the “want-to-happen” bad news came from Jeff Cox, a staff writer for CNBC.

Cox wrote, “China’s economy is showing real signs of weakening, particularly in real estate, and even could tip into a recession, hedge fund manager Jim Chanos told CNBC.”

I’m surprised that Cox looked under a Hedge Fund rock to find a quote predicting a bad economic future for China.

Basically, Hedge Fund managers do two things: they use small amounts of money, or leverage, to promise large amounts of stocks or commodities. Secondly, they all say they will deliver this stock or commodity at a particular point in time. In that sense, hedge fund managers are trying to time the market, which some would say is very difficult if not impossible to do unless they manage to manipulate the market in some way or have a crystal ball.

Using other sources, we discover a few facts that tell us Cox should have left that quote under the Hedge Fund rock where he found it and called someone else.


Discover how many Chinese buy real estate.

First on May 5, Jason Simpkins writing for Seeking
Alpha says,
 “Yes there are probably pockets of bubbles in China and in the real estate market, but against that backdrop you have 500 million people expected to move into Chinese cities by 2020. That means the number of people expected to move into cities is almost double the population of the United States,” said Money Morning Chief Investment Strategest Keith Fitz-Gerald. “So in the context of China’s explosive growth, what we’re looking at are some moderate setbacks over an extended period of high growth.”

Second, on May 9, James Kostohryz writing for Minyanville says, “China’s Housing Bubble: Mainly Hot Air… Studies by the World Bank, The Economist Intelligence Unit, and UBS have noted that average home prices in China as a whole have risen by roughly 6%-7% per annum in the past decade.

Third, China’s real estate investment accounts for roughly 11% of its GDP, and from Chris Oliver writing for Marketwatch on May 18, we discovered that “New home prices rose across leading Chinese cities in April, even as many key cities saw the pace of appreciation and sales volume cool, according to official data Wednesday.… Of 70 cities tracked in the survey, 56 reported gains in new home prices.”

“So, I think that it should be clear by now, that there is no generalized price or quantity bubble in the Chinese residential real estate market,” Kostohryz wrote, “Home prices have actually been getting substantially more affordable in China in the past decade relative to income levels.”

To learn more, I recommend reading what Simpkins, Kostohyrz and Oliver wrote on this topic. The links have been provided.

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Lloyd Lofthouse is the award-winning author of the concubine saga, My Splendid Concubine & Our Hart. When you love a Chinese woman, you marry her family and culture too.

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2 Responses to Bobbleheads Still Predicting Bursting Bubbles in China

  1. merlin says:

    I dont know about the other cities, but I know when people talk about the real estate market they look at Shanghai. The government here predicts that by 2020, the city will grow so much they’ll have 22 metro systems weaving through the suburbs and center of the city. In my personal opinion, it wll be like Tokyo (even though I’ve only seen it from the air).

    As for the “bubble” something is chomping at the bit in the Chinese economy. Just living here a half year to a year and you’ll notice. The average income for average chinese in Shanghai is around 2000-3000rmb (talking the average jobs of customer service, office desk employee, supermarket staff, janitors, city janitors, etc). So really, the ONLY people dealing massively with real estate are those in higher position jobs that mainly buy/rent 5 homes and then give them to their many mistresses. The foreigners renting homes here are mainly from upperscale lifestyles because they can afford the rent AND to party all night at the clubs (from my experience and I’ve yet to meet another bum like me). Those that choose to live here COULD live a cheaper lifestlye by moving to the suburbs and surviving by replacing the power guzzling ac units with smaller fans. I’ve done this before, yes I didnt enjoy it much, but when one is working in the city one will always find ac in their place of work. As for fear of sweating too much, play the Chinese way and buy cheap cologne.

    I say SOMETHING not specifically the real estate market is affecting the economy because when I go to the supermarket to buy my favorite noodles, the price has gone up. Last year I was paying around 1.6rmb, today I pay 2 rmb for a 250g package of Nikko noodles (with the picture of Lao Tzu on the front representing longevity hence the name Longevity Noodles). I get my stats from shopping at Auchan (similar to Carrefour, but damn cheap on prices).

    • I have been reading and hearing about the rise in food prices in China.

      I am not sure what has caused that rise in food prices, but it is possible that global warming will have played a role there too if crop yields in China are down and more food has to be imported. I know that the rise of China’s middle class has increased demand on imported foods due to the demand for more meat and that may have had an influence on other food prices too. I am also aware that China is growing food in other areas of the world such as Africa to meet the needs of feeding the Chinese people to avoid another famine such as the one that hit China during Mao’s Great Leap Forward, which means some food has to travel farther to reach China, which will also increase costs.

      China does not have as much arable land to grow crops on as the US. In fact, China grows all of its food on about 11% of the land in China while the US grows food on five or six times the land area. In addition, China has more than four times the people to feed.

      In fact, much of China’s water for the northern part of China comes from Tibet and northern Tibet has been plagued by drought for some time now.

      Fear of famine is always on the central government’s mind because a large famine could lead to unrest that might topple the government leading back to the anarchy and chaos that racked China after the collapse of the Qing Dynasty in 1911 leading to the Civil War between the Communist and KMT political parties.

      You are correct about the ownership of property. Most of the homes in urban China are owned by the upper middle class or very wealthy while 85% of the people. The 700 to 800 million that live in rural China live in homes owned by farming collectives and the government. There is no rent and the people cannot sell the homes so there are no mortgages for this vast number of people. This means if a migrant worker that moved to urban from rural China loses his or her job, all they have to do is go home to their rural village and back to the family home where they live off the land by raising food they grow and live in rent and mortgage free housing something we cannot do in America or the West.

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