Showing posts with label China bubble. Show all posts
Showing posts with label China bubble. Show all posts

Saturday, October 13, 2012

13/10/2012: China's Property Bubble



Some interesting insights into China's economy dependency on property markets from the ECB Monthly Bulletin (link: http://www.ecb.int/pub/pdf/mobu/mb201210en.pdf). Italics are mine:

"Housing investment has been an increasingly important source of growth for China in recent years". Most notably:

  • Real estate investment accounts for about 25% of total fixed asset investment, with the latter having driven 50% of GDP growth since 2006. So overall, over 12% of China's economic expansion is now due to property boom directly. Associated activities, e.g. construction, construction materials, banking services and planning & development services probably means that good 17-20% of the overall growth in China since 2006 has been due to the real estate investment boom.
  • "In terms of its share in GDP, real estate investment rose from 10% in 2006 to 16% in 2011".
  • "Construction and real estate services together employ over 10% of the workforce and contribute to 13% of total added value". 
  • "Real estate investment also has strong linkages to other industries such as machinery and equipment".


"House prices in China have risen sharply in recent years and are high compared with incomes'. 'High'? Judge for yourselves:

  • Average price per sqm of housing "across a sample of 35 large and mid-sized Chinese cities nearly tripled between 1999 and 2011, although this average masks great disparities." 
  • "The price of a 100m2 house expressed in multiples of the annual disposable income of an average family of 3.3 persons also varies widely, from 4.4 times yearly income in peripheral cities (Hohhot, Inner Mongolia), to close to 16 in large, booming cities such as Beijing and Shenzhen (see Chart A)."

  • "On average, the ratio fell between 1999 and 2011 as disposable income rose faster than the square metre price (11% compared with 9% annually – see the red dotted line in Chart B). However, when one considers the increase in the size of the average house, a different picture begins to emerge. Over recent years, living space has increased from an average of 19.4 m2 per capita in 1999 to 32.7 m2 in 2011,  while the average household size has decreased from 3.6 persons to 3.1, implying that the average house has grown from 70 m2 to 101 m2. As a result, the price of the average house (expressed in multiples of income) rose from 6.4 in 1999 to 8.6 in 2011 (see the blue line in Chart B)." 


Sunday, January 31, 2010

Economics 31/01/2010: S&P, Gold and forward view on risk

Couple articles worth reading:

1) China bubble - here. In my view - the analyst is spot on - there is a massive bubble in Chinese economy. So large, when it goes, the entire global growth will be derailed. We are, in effect, now treading to closely to the 1932-1934 period of the Great Depression, when the markets forgot fear for a sustained Bear rally before rediscovering that risk mispriced is a disaster waiting to happen.

2) Gold - here. Great chart on 89% loss line.
A very promising direction on gold, of course, which is in line with (1) above.

Prepare for some fun. Take a look at VIX:
All supports are out at this stage and risk appetite is falling since the beginning of the year. Bonds rallying, S&P is taking on water. The only way from here for the likes of Gold is up, for DJA and S&P - down. Back to that 89% rule line in (2) above.