Friday, June 4, 2010
WSJ Reports "China's Property Market Freezes Up"
If we didn't already know that China's top-down stop-go economic policies weren't dangerous already the Wall Street Journal gives us evidence. (side note, I've been working on a detailed post about this issue over the past two weeks and will try to get it up later today or tomorrow.)
From the WSJ article: "Government policy changes have thrown China's booming property market into a period of paralysis that some industry executives say will last for several months, weighing on global growth prospects already battered by the turmoil in Europe."
"A rebound in China's property market has been central to the nation's rapid recovery from the financial crisis, but surging housing prices had led to increasingly open discontent from middle-class families in major cities. After months of indecision, Beijing in mid-April announced a package of policies intended to blow the froth out of the market by restricting speculative purchases."
"China's economic growth was already widely expected to slow in coming months, as the impact of last year's stimulus policies fade. Some forecasters, seeing weaker prospects in a key industry, are now further marking down their numbers for this year. China International Capital Corp. now expects the economy to expand 9.5% in 2010 as a whole, rather than the 10.5% it previously forecast."
My initial take on the matter is that first of all, with the rest of the world dealing with very low inflation and in some places deflation, 10% economic growth for the largest exporter seems not only unsustainable, but also very dangerous. There have already been talks about China manipulating its currency in order to hold up its competitive advantage in manufacturing and exports. If this is true, we are already looking at a squeeze to its burgeoning middle-class before its really clear that the country truly has a middle class. On the other hand, as is also widely reported, China's savings rate, historically around 40%, has edged up over the past several years to 50% of GDP. Clearly the only individuals saving 50% of their earnings are those wealthy enough to do so. Nonetheless, it is an indication of the incredible cushion China has built to protect itself should the economy spiral into a free-fall. I suppose the question then becomes, how long can that cushion support them if cheap exports go to the wayside? (more to follow)