A lot of economic experts nervously sees that the next global market to melt down after U.S. and Europe will be China’s. China has been nothing short of a financial miracle. In just 30 years, this “state- controlled” economy became the world’s second largest, mainly manage by government policies and decrees. One sector the authorities are concentrated on was “real estate” and construction. But that may also have created the largest HOUSING BUBBLE in human history. If you go in China, it is easy to see why there is always talk of the bubble. The supposedly most populated nation on earth is building houses, districts, and cities WITH NO ONE IN THEM!
china housing bubble
The new eastern district of Xi’an Jiao… it is one of the most populated province in China, but NOT ANYMORE! If you go in this place, you will found a GHOST CITY of new towers, with no residence, desolate condominiums, and vacant subdivision. Uninhabited by miles and miles and miles…. of EMPTY APARTMENTS. Although these are empty, these properties are been sold and owned by people in China’s emerging middle class who now have enough money to invest, but few ways to do it because they are not allowed to invest abroad. Banks offered low returns and stock market is a roller coaster. But 15 years ago, the government change this policy and allowed people to buy their own homes, and the flood gates open. So what they do is to invest in properties because they believe that it will always beat the inflation.

Unlike in a market-driven economy, in China, it’s the government that has spent some 2 trillion US dollars to get these cities built as a way of keeping the economy growing. The government assumption is, “if you built it, they’ll come”, but the problem is, NO ONE IS COMING.

This is not the worst part… in order to build this massive ghost cities, they have to tear down what was there before. Clearing rice fields and displacing by some counts of tens of millions of villagers.

There is another problem, analysts warned that all of these building has all created a BUBBLE that could BURST. What if this bubble burst? If it burst, all of the people in different classes will loose their savings. Actually, it will evaporate around 3 generation worth of savings (Grand-parents, Parents and Children)! That’s a DISASTER!

To try and prevent this disaster, the Chinese government decided to act. Remember their “One-CHILD” policy? Since 2011, China has a so-called “One-Apartment” Policy. Where it is very hard to buy more than one apartment in major cities. Because of this, prices plunged, and the bubble was being tamed. And yet, the taming was creating unintended consiquences. First of all, a lot of developers are now in debt. And they are stopping the development because they do not have enough money to go forward. Hence, a lot of unfinished giant projects were produced a Financial district with something like Lincoln Center and World Trade Center. A lot of economists believe that the BUBBLE in China is too big for this government to control.

Meanwhile, those who can afford, are still buying as much as real estate as they can. They are even finding ways around the “one-apartment” restriction in big cities. And new owners are lined up to register with their new apartments. Because they are not aware of the real situation, for them, it seems that good times will never end.

To understand more about the credit and debt crisis in China, please watch the video below:

I am pretty sure you will understand more like I did it with my article about Greece. Wait, have you read my article about “What Happened in Greece”? Read it too! I am sure you will learn a lot! :)
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