Will China Be Next to See a Housing Crash and Economic Slide?

Posted by Jim DeBellis on June 10th, 2011

If you think our government is spending a lot of money, take a look at China.  Their so-called “growth model of the future” that the whole world is touting as the inevitable culmination of a civilized economy that we all must emulate is built on a rapidly expanding real estate market.  Sound familiar?

The difference is that the government is doing all of the building – on spec.  It’s not only the dozens of billion-dollar bridges that we’ve heard about, but you may have heard of their famous ghost cities which are very popular on Youtube.

The Chinese government is in the process of creating 36 million affordable housing units in the nation.  Take the case of Kangbashi, a city of 30,000 people in Inner Mongolia.  It has been built into a huge city with $160 billion in real estate development to accommodate one million residents who haven’t rushed in from the countryside to become urban dwellers, as expected.  It’s not only housing, but commercial districts and huge ghost malls – all just sitting idle and vacant.  This scenario is repeated many times throughout China.

Now China is falling behind in its ambitious five-year construction schedule.  Its economy is slowing down more than expected.  Its trade surplus is dwindling.  Domestic demand for goods is drying up.  Soaring real estate prices have generated a bubble that is starting to deflate.  They aren’t past the tipping point, but with spending and plans and government tinkering of this magnitude, anything can happen.