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The Circle Bastiat

Beware of China's housing bubble

The housing frenzy has driven prices so high, so fast, that a crash on the scale of the real estate collapse in Japan in the 1990s is a virtual certainty in China

By Mark ThorntonGuest blogger / January 29, 2012

A Chinese national flag flies in front of private apartment blocks in Hong Kong in this file photo. Some are warning that China's inevitable housing bust could have a global effect.

Tyrone Siu/Reuters/File

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The housing bubble was a global rather than US event. The bubble outlasted the US experience in several other countries such as Australia and Canada which are experiencing some weakness. However, the one I’ve worried about is in China. Keep your eye on this one.

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This is the institutional blog of the Ludwig von Mises Institute and many of its affiliated writers and scholars commenting on economic affairs of the day.

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FORTUNE:

The Chinese government’s announcement last week that growth for 2011 slowed only slightly to a still impressive 9.2% was greeted enthusiastically by the world’s stock markets. Investors also remain buoyant on China’s future. They appear to be buying the official line that the gigantic property price bubble is gradually and smoothly deflating, posing little risk to an engine that’s so crucial to the future of global trade.

But the math tells a different story. The housing frenzy has driven prices so high, so fast, that a crash on the scale of the real estate collapse in Japan in the 1990s is a virtual certainty. And China’s already exaggerated official growth rate could take a pounding, all the way to the zone of the unthinkable, into the low single-digits.

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