Building China too Fast and the Struggle to Slow Down

Andrew Thomas of Aljazeera English reported from Chuzhou, China July 13, 2011.  He tells us about real estate agents in Beijing canvassing the traffic during rush hour, which happens to be most hours in China’s capital.

In the U.S., we might see homeless people going car to car offering to clean windows for a dollar but in China, the odds are those people going car to car will be real estate agents handing out flyers urging people to buy homes.

During most of the day, one can get around Beijing faster on foot or using the subways than driving a car or taking a taxi, which usually results in sitting dead in traffic breathing fumes from other cars.

Thomas reports that the real-estate agents will do just about anything to sell apartments hitting the market. The reason is that the Chinese are building more new apartments than any country on earth.

In Chuzhou, three hours from Shanghai, Thomas takes us on a tour of what he calls an “unremarkable town” and says this level of housing development is happening all over China.

Thomas says, between 2009 and 2010, there was a 41% rise in housing construction as prices soared. He then questions if Chinese speculators are driving this housing bubble.

In addition, he says China’s electricity authority, last year, reported that over 65 million homes use no power because they are standing empty as prices keep going up.

Thomas says China’s government is worried and wants to avoid a real estate bubble bursting so they have raised interest rates and increased the minimum down payment people must pay for second homes.

Stephen Joske of the Economist Intelligence Unit says, “We are not looking at a bubble burst resembling anything like what’s happened in the U.S.—probably a short correction.”

Therefore, for economists in the West that keep predicting China’s housing bubble will burst and slow China’s growth, think again.

As for aspiring home buyers, many in China are waiting to see what happens and are hoping prices go down. Thomas says a price drop could hurt many overseas markets that depend on China’s growth and development.

If a real estate bubble bursts in China, the odds are that the shock waves will be felt worse outside China in countries still recovering from the 2008 global financial crises caused by the private banking and financial sector in the United States, and Thomas explains why that may happen.

The reason for this speculation may be the central government’s plans to move a few hundred million more rural Chinese into newly built urban cities and new homes in older cities as China transitions from an economy dependent on exports to one driven by middle class consumption.

These property speculators are betting on the future.

Discover more from The “What if” Housing Bubble in China


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7 Responses to Building China too Fast and the Struggle to Slow Down

  1. Terry K Chen says:

    Chunyun is absolutely CRAZY! Everybody seems to be travelling at once. But its quite sad that for many Chinese it’s one of their only oppurtunities in a year to see their families. Chinese cherish family bonds a lot and its almost impossible for most Chinese to imagine never seeing their family members.

    • We traveled China in 2008 during that mass migration of several hundred million and the trains and planes were crowded–lots of long lines too. Still, we managed to get tickets although we had to use a family friend once or twice that is now a retired Communist Party member that fought during China’s Civil War on the winning side. He is in his eighties now and held a high Party job at one time. With his help, we managed to find tickets to travel that week but some of the trains were the slower ones and they crawled stopping often. Once, it was standing room only.

      However, we met some very interesting people on the slower trips as we either went to the northwest toward Xian or southeast to Guilin, the Dragon’s Back, the Li River, etc.

  2. Alessandro says:

    And yes, you are perfectly right regarding the huge number of people moving around the country at the same time especially during the Spring Festival. Such period, know as “Chunyun” (more or less the “Mass transport of Spring”), put a great strain on the national mass transport system (mostly railway, but recently also airways), which strives to serve some more than 300 million people all traveling around in a period of less than 10 days. Usually in front of the main stations many additional ticket selling points are built on purpose little ahead of the festival, and it’s particularly difficult to find train tickets for many destinations if you don’t buy them well in advance.
    I think it’s not exaggerated to define it the world’s largest periodical mass migration (if you think about it, is almost like the entire US population traveling at the same time).

  3. Alessandro says:

    Yes, on national holidays (such as Spring Festival or National Day) streets are full of people, mostly tourists using the holiday period to come to BJ for sightseeing etc. But usually they also are the periods during which a large part of BJ enormous number of “waidiren” (out-of-towners) go back to their homes in the country, thus greatly reducing the whole city population… Usually, in my experience, traffic is a little better in those periods (as is the situation on buses and subways), but it may all well happen that due to particular circumstances (such as the numerous “miaohui” or temple fairs during Spring Festival etc.) gridlocks happen also in this times.

  4. Alessandro says:

    Beijing’s traffic situation is greatly exaggerated..It’s true that during rush hours (namely, morning till let’s say 9 something, and evening, starting from maybe 5-5:30 to 7.00 more or less) gridlocks can happen (especially on the 3rd and 4th ringroads, and some major thoroghfare), but for the rest of the day the situation is more or less acceptable, and going by taxi or by bus (especially for not too too far away destinations, Beijing being a HUGE city) is pretty much doable. I personally prefer bus over subway cause don’t to be underground for too long, and love to sit on bus, reading a book and enjoying daylight if possible…but of course that depends from the time you have and the distance u have to cover 🙂

    • Alessandro,

      The last time I was in Beijing was during the national holiday and many Chinese were traveling (I’ve read more than 200 million go on vacation or travel home to visit familyi), which may explain my experience with crowded streets at all hours.

      The hours you mention for gridlock are about the same for most big cities in the US, which are tied to the hours people go to work.

  5. Xiaohu Liu says:

    An alternate theory for the housing bubble from Patrick Chovanec is that Chinese business has been using the property market as a place to park cash.

    He argues that because there are so few investment vehicles available in RMB that businesses park loans from Chinese banks in property and this is what is driving the housing prices.

    Of course, this is a natural argument for financial market liberalization, and he is a neo-con who was a former aide to Bill Kristol (key neo-con figure). Interesting argument nevertheless.

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