China’s housing problem
The Chinese housing has been in rough shape for more than a year. Quartz’s Gwynn Guilford charts the latest set of bad numbers. It’s not an out of control crash just yet – prices are still rising on a yearly basis – but the boom of the last decade is certainly over.
In May, Guilford argued that it may already “be too late for the Chinese government to stop its housing bubble from popping.” The problem, she said, was that economic growth had become too closely tied to housing investment. Matt O’Brien made a similar point when he said that a manufacturing-dominated view of China’s economy was out of date. After the financial crisis, demand for its exports dropped, and so China looked to housing, the sector at the heart of the crisis in the West, to drive its recovery.
And then recently, when a dip in the housing market caused slower economic growth, the government told banks to issue more mortgages. But more mortgages alone won’t necessarily mean more home buyers: credit standards will need to be loosened for that to happen. If you are worried about Chinese housing starting the next financial crisis, Simon Johnson has a relatively comforting prediction. He and co-author Peter Boone say that the whole thing will end not with a Lehman-like catastrophe, but a “ more standard credit bust, driven by the drying-up of the nonbank markets and some losses on bank loans.” In the context of bad outcomes, that’s definitely not the worst.