China's massive property bubble creates mad scramble to take on decades of debt


#1

Originally published at: https://boingboing.net/2017/10/01/subprime-w-chinese-characteris.html


#2

It would seem that decades of communism has done even less to teach the Chinese basic finance than the average Westerner can manage, so this really doesn’t bode well for the future.

(Edit - I though good Communists were supposed to read Das Kapital?)


#3

It reminds me of how the neoCons tried to stuff Western-style capitalism and democracy down the throats of people in the Middle East who had no experience of either and just expected them to pick it up naturally.

Mao’s response: tldr;, peasants, read my Little Red Book instead.


#4

And Russia, after 1990, leading to the various Russian mafias and ultimately the rise of Putin.


#5

Judging by the Seattle housing market and the general housing history of the US over the past deacade I am not so sure westerners are better.


#6

Exactly. The PNAC fantasy did a lot of damage in the 1990s and 2000s. Once they accepted that the “end of history” had been reached in 1989 and that neoliberalism was the natural order of things to the degree that it couldn’t be named the neoCons (and the Third-Way Dems) laid the groundwork for what we see now.

The interesting part of this story is that the Chinese leadership bought into that fantasy, too. There must be a huge disconnect between them and the average Chinese person for that to happen.

Occasionally over the years, friends or paramours who’ve found themselves in financial difficulties have come to me for help getting out. The most memorable of those occasions remains a woman I was dating who had an entry-level financial analysis job at an NYC investment bank. So yeah.


#7

We’ll know it’s time to panic when a senior financial expert tells us ‘I’m sure it’ll be completely different this time.’


#8

If, in fact, Middle Easterners are culturally unprepared for representative government (which is what I think you’re saying), then this leaves us with accepting the strongmen in power.

Which is actually OK with me, but note that none of GW Bush, B Obama, H Clinton, or D Trump seemed to be able to avoid moralizing and meddling over there.


#9

Isn’t that a bit of a condescending thing to say from countries who had running water and a written system about 3000 years before Christ, whether these countries are middle east (present day Iran) or far east (present day China, which I thought was the object of the article)? “Culturally unprepared for representative government“? Really? Is the USA “culturally prepared for representative government”? If yes, why did it elect Donald Trump?


#10

There is no way this ends well. Once you have a situation where the boom is being fueled by people who are buying multiple units and are expecting rapid appreciation to solve the problem of being massively overleveraged you’ve inflated the bubble about as far as it can go. All that’s next is people buying multiple units while they’re still under construction. There is so much late stage bubble behavior illustrated here:

  • People of modest means leveraging themselves to the hilt expecting to make several times their annual salary in a short period of time
  • The people lending money are assuming extreme price appreciation will continue and are using that to justify loaning a lot of money to marginal buyers
  • Whole families are putting every egg they have into this one basket

Both the borrowers and lenders now require that the extreme price increases continue. If price increases slow or flatten you lose the “buy now now NOW” urgency and the new buyers decrease, overleveraged owners lose the ability to borrow to service debts and are forced to sell. And since everyone has all their eggs in one basket and are watching the basket closely, any dip in prices is likely to result in people trying to sell in a hurry. The the feedback loop starts spinning in the other direction and a lot of people lose a lot of money.

I swear bubbles only collapse once they have gotten to the point where the maximum number of people will be hurt.


#11

Of course the neoCons did not do that, as it would not have given them access to the oil reserves of these countries. You should not believe the neoCons propaganda.


#12

Given how Neocons act as if Capitolism isthe natural order they probably genuinely think it IS instinct so no lessonsrequired for the basics.


#13

I think they were fine with representative government, we just weren’t prepared for them choosing not to elect “our guy”. Funny story, there’s a long history of that, read about our repeated overturnings of elections in Latin America and SE Asia, or “Confessions of an Economic Hitman”.


#14

I don’t. If you read the PNAC manifesto and articles by prominent neoCons you can see that a lot of them really drank their own Kool Aid when it came to this nonsense, the most ridiculous claim being that Iraq would be transformed into an “Arab version of Israel” after Saddam was deposed. In practise, of course, the invasion was at the behest of America’s oil services companies and munitions industries above all else, in addition to satisfying Bush Jr.'s personal vendetta and daddy issues. In the longer term, Iran and the local religious nuts also benefitted.

Absolutely. Certainly there are people from Arab countries who are open to the idea of participating Western-style capitalism and democracy; a common term for them here in the West, at least by people who aren’t backwards and xenophobic Know-Nothings, is “immigrants,” because that’s often why they uproot their lives and leave their homelands if not tied down by family obligations.

For others – the more risk-averse and conservative and hidebound who stay behind – it’s a much slower but by no means impossible process for them to break free from the centuries-long toxic cycle of strongmen and priests and come around to liberal democracy and/or capitalism. But it’s better to demonstrate the benefits by example and project them through the soft power of the media rather than forcing it on people at gunpoint and thinking that’s enough to change a long-standing political-economic culture instantly.

Unfortunately, a liberal democracy that doesn’t choose to set that example and instead debases its political-economic culture and wallows in its imperial might can easily backslide into just the kind of authoritarian or basket-case nation-state it claims it wants to help reform. The U.S. certainly seems headed in the direction of that kind of cargo-cult republic in these days of late-stage capitalism and a declining empire’s over-reach.


#15

Standard of living has no bearing on maturity of political systems. For example Singapore is a very clean, modern nation-state with little to no regard for human rights.


#16

The longer I pay attention to the news, the more I’m convinced that exploitative economies are the natural order. It’s economic regulations promoting equal access and opportunity, fair wages, and real worth that seem to be a historical anomaly.


#17

Bank lending is only half the story, the other part is really rapid urbanization.

Urban housing prices are going insane because there’s way more people who want to live in cities than places for them to live.

But yeah, it does look like something crazy is going on in Shenzhen, one hopes it’s just a supply shortage and not a pure bubble going on.


#18

I logged in just to tell you how much I appreciate this comment. Well said!


#19

Wondering if the same buyers, priced out of the China bubble, are investing in the U.S. housing market.


#20

Those buying into the bubble are mostly fairly well-off middle class people (managers, skilled workers, others with modest but steady income streams), so unless they’re pooling resources I doubt they can afford to buy abroad. Those who can afford to buy in London or Vancouver or NYC or Toronto are using their properties as hedges and safe deposit boxes and (in some cases) homes for children they’re sending to school in N America.