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AARON TAY WEI LONG | SAMANTHA FONG LI WEN | LOO JING MIN | TEO SWEE LENG | POH SHU XIAN |RAYMOND TAN MIN WEI
A BUBBLE?
CHINA REAL ESTATE MARKET
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INTRODUCTION POLICIES IMPLEMENTED
POLICIES IMPLEMENTED LOOKING TO THE FUTUREOF CHINA
LOOKING TO THE FUTUREOF CHINA
IS THERE A BUBBLE?
IS THERE A BUBBLE?
INTRODUCTION ± THE BUBBLE
Create excess
demand andproduction
Once bubbledeflates, need acontraction or consolidation
Economic andfinancial effects
Definition Problem
ER
Ty
Rapid increases in
valuations of realproperty until they
reach unsustainablelevels relative to
economic elements,followed by reduction in
price levels
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INTRODUCTION POLICIES IMPLEMENTED
POLICIES IMPLEMENTED LOOKING TO THE FUTUREOF CHINA
LOOKING TO THE FUTUREOF CHINA
IS THERE A BUBBLE?
IS THERE A BUBBLE?
Problem Past Bubbles
INTRODUCTION ± THE BUBBLE
Create excess
demand andproduction
Once bubbledeflates, need acontraction or consolidation
Economic andfinancial effects
Irrational
Exuberance ²Robert Shiller
RationalSpeculation
Types of Bubbles
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INTRODUCTION POLICIES IMPLEMENTED
POLICIES IMPLEMENTED LOOKING TO THE FUTUREOF CHINA
LOOKING TO THE FUTUREOF CHINA
IS THERE A BUBBLE?
IS THERE A BUBBLE?
INTRODUCTION ± THE BUBBLE
IDENTIFICATION PROBLEM
While the price of anasset is observable, the
correspondingfundamentals such as
the expected returnfrom the asset is not.
Ben S. Bernanke
No hard and fast definition
When is a boom a bubble?
Different economic schools of
thought Widespread attempts to
estimate the µfundamental value¶
for housing
Appropriate housing market
indicators
Hard to practice ³safe popping´
Assess which portion justified by
fundamentals
Monetary policy, a blunt tool
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INTRODUCTION
INTRODUCTION POLICIES IMPLEMENTED
POLICIES IMPLEMENTED LOOKING TO THE FUTUREOF CHINA
LOOKING TO THE FUTUREOF CHINA
IS THERE A BUBBLE?
IS THERE A BUBBLE?
REASONS WHY THERE IS NO BUBBLE
EXAMINING THE SYMPTOMS
Rising Income Support RealEstate Prices
Urbanisation Drives Demand
Rising Income Support RealEstate Prices
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INTRODUCTION
INTRODUCTION POLICIES IMPLEMENTED
POLICIES IMPLEMENTED LOOKING TO THE FUTUREOF CHINA
LOOKING TO THE FUTUREOF CHINAIS THERE A BUBBLE?
IS THERE A BUBBLE?
REASONS WHY THERE IS NO BUBBLE
EXAMINING THE SYMPTOMS
Rising Income Support RealEstate Prices
Gains in home prices have
not dramatically outpaced
rising incomes
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INTRODUCTIONINTRODUCTION POLICIES IMPLEMENTEDPOLICIES IMPLEMENTED LOOKING TO THE FUTUREOF CHINALOOKING TO THE FUTUREOF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
REASONS WHY THERE IS NO BUBBLE
EXAMINING THE SYMPTOMS
Urbanisation Drives Demand
Stephen Roach (June 2010)
Chairman of Morgan Stanley Asia Ltd,
³The property boom in
China isn¶t a bubblebecause it¶s supported
by ³solid´ demand for
residential housing´
15 and 20 million people
migrate to cities annually
Two and a half µNew YorkCitiesµ created annually
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INTRODUCTIONINTRODUCTION POLICIES IMPLEMENTEDPOLICIES IMPLEMENTED LOOKING TO THE FUTUREOF CHINALOOKING TO THE FUTUREOF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
EXAMINING THE SYMPTOMS
Rapidly Increasing
Home Prices
High Price-to-
Income Ratios
High Price-to-RentRatios Vacant Properties
REASONS WHY THERE IS A BUBBLE
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RAPIDLY INCREASING HOME PRICES
EXAMINING THE SYMPTOMS
Real prices more than
doubled over the past decade
- Appreciation rates escalating
at the beginning of 2007 and
then again in early 2009.
41% (annualized) growth rate
for the first quarter of 2010
In general, average housingprices in China has tripled from
2005 to 2009 - Far East
Economic ReviewConstant Quality Price Index
Source: Wu, Gyourko and Deng (2010)
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RAPIDLY INCREASING HOME PRICES
EXAMINING THE SYMPTOMS
Shanghai
(1st Tier City)
- Real estate prices
increased by over
150% between 2003and 2010 ± NY Times
Tianjin (2nd Tier City)
- Projected to have
more prime office
space than can be
absorbed in 25 years
at the current rate -
Forbes.com
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HIGH PRICE-TO-INCOME/PRICE TO RENT RATIO
EXAMINING THE SYMPTOMS
³ But it was not high price levels alone that
convinced Case and Shiller (2003) and Shiller (2005) that US house prices had become
unsustainable ± it was the all-time high price ±
to-rent and price-to-income ratios´
Joseph Gyourko
Professor of Real Estate,Finance and Business and
Public Policy
University of Pennsylvania
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INTRODUCTIONINTRODUCTION POLICIES IMPLEMENTEDPOLICIES IMPLEMENTEDLOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
HIGH PRICE-TO-INCOMERATIOS
EXAMINING THE SYMPTOMS
2010 Annual Demographia International HousingAffordability Survey
Measure of housing affordability
Ratio:
Also measures the presence of
market distortions
Even though income growth has
been strong in urban China, price-to-income ratios also have beenincreasing in these same markets.
Median house price
Median household
income ( Annual)
Median house price
Median household
income ( Annual)
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OF CHINA
LOOKING TO THE FUTURE
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HIGH PRICE-TO-INCOMERATIOS
EXAMINING THE SYMPTOMS
Median house price
Median household
income ( Annual)
Median house price
Median household
income ( Annual)
Measure of housing affordability
Ratio:
Also measures the presence of
market distortions
Even though income growth has
been strong in urban China, price-to-income ratios also have beenincreasing in these same markets.
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OF CHINA
LOOKING TO THE FUTURE
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HIGH PRICE-TO-INCOME RATIOS
EXAMINING THE SYMPTOMS
Liu Weixin, an urban development specialist at the China Society of
Urban Economy in Beijing, told the Global Times:
± The high ratio of home price to income is a nationwide problem.
± Property price is also abnormally high in 2nd and 3rd-tier cities
Statistics on Beijing promulgated by State Statistics Bureau:
± Average price of commodity residence in Beijing in 2010 is 7000 Yuan
PSM
± Therefore, a 80 square meters house will cost 560,000 Yuan.
± MEDIAN annual income of each family in Beijing 34,000 Yuan.
± House price-to-income ratio in Beijing is 17/1
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INTRODUCTIONINTRODUCTION POLICIES IMPLEMENTEDPOLICIES IMPLEMENTEDLOOKING TO THE FUTURE
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EXAMINING THE SYMPTOMS
HIGH PRICE-TO-INCOME
RATIOS
4 cities with the highest price-to-
income ratios are:
Shenzhen
Beijing
Shanghai
Hangzhou
Shenzhen ratio: > 20:1
Beijing ratio: 17:1
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INTRODUCTIONINTRODUCTION POLICIES IMPLEMENTEDPOLICIES IMPLEMENTEDLOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
EXAMINING THE SYMPTOMS
HIGH PRICE-TO-INCOME
RATIOS
Singapore property bubble is
probable
Government measures
introduced
Singapore ratio is only 7:1
China¶s national average also
7:1
Once again, Beijing, Shanghaiand Hangzhou are mentioned
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EXAMINING THE SYMPTOMS
HIGH PRICE-TO-RENT RATIOS
Each of the 8 cities is amongthe largest markets in China,
with none having a populationbelow 8 million.
Increase in speculative
purchases causes the number
of vacant apartments to rise.This causes rents in the area
to fall although property price
continue to rise ² Sardesai
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INTRODUCTIONINTRODUCTION POLICIES IMPLEMENTEDPOLICIES IMPLEMENTEDLOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
HIGH PRICE-TO-RENT RATIOS
EXAMINING THE SYMPTOMS
Price-to-rent ratios have increased by at least 30% over the past 3 or soyears in each of these cities.
Very large increase in Beijing, rising 75% from 2007 to 2010.
Hangzhou, Shanghai and Shenzhen also have seen their price-to-rent
ratios rise sharply to over 40.
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OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
HIGH PRICE-TO-RENT RATIOS
EXAMINING THE SYMPTOMS
Q1, 2010
Global Property Guide
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INTRODUCTIONINTRODUCTION POLICIES IMPLEMENTEDPOLICIES IMPLEMENTEDLOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
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EXAMINING THE SYMPTOMS
Chinese City Has Many Buildings, but Few People - NY Times
VACANT PROPERTIES
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OF CHINA
LOOKING TO THE FUTURE
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VACANT PROPERTIESCASE STUDY: ORDOS,
NORTHERN CHINA
EXAMINING THE SYMPTOMS
Kangbashi, Ordos was
projected to have
300,000 residents
Government claims
that 28,000 people
live in the new area
Kangbashi, Ordos was
projected to have
300,000 residents
Government claims
that 28,000 people
live in the new area
Many other cities like
Ordos Eg. Kunming
Many other cities like
Ordos Eg. Kunming
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INTRODUCTIONINTRODUCTION POLICIES IMPLEMENTEDPOLICIES IMPLEMENTEDLOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
No Yes
IS THERE A BUBBLE?
THERE IS A BUBBLE
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INTRODUCTIONINTRODUCTION POLICIES IMPLEMENTEDPOLICIES IMPLEMENTEDLOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
CAUSES OF THE BUBBLE
CREDIT L ACK OF ALTERNATIVES
GOVERNMENTSUPPORT
YUAN
UNDERVALUATIONHOT MONEY INFLOW VESTED INTEREST
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OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
CREDIT
CAUSES OF THE BUBBLE
Stimulus Package -Largest bailout as a
% of GDP
Too much moneyavailable
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INTRODUCTIONINTRODUCTION POLICIES IMPLEMENTEDPOLICIES IMPLEMENTEDLOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
CREDIT
CAUSES OF THE BUBBLE
As a result, M2money supply
exploded by 27% in
2009, outstripping
GDP growth.
Too much moneyavailable
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OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
CREDIT
CAUSES OF THE BUBBLE
Increasing amount
of loans made in
2008 and 2009.
Lending standardsdropped
dramatically,
especially among
smaller banks.
Too much moneyavailable
Ease of Credit
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OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
CREDIT
CAUSES OF THE BUBBLE
Extended period of
relatively low
interest rates
compared to the1990s prompted
borrowing.
Too much moneyavailable
Ease of Credit
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LACK OF ALTERNATIVES
CAUSES OF THE BUBBLE
Chinese wary of theequity market,
bubble in 2007,
resulted in market
losing 70% of its
value in 2008.
Bond market
relatively illiquid
Equity and BondMarket
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OF CHINA
LOOKING TO THE FUTURE
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LACK OF ALTERNATIVES
CAUSES OF THE BUBBLE
1 yr CNY deposit
rate only 2.2.5%,
lower than inflation ±
negative real
interest rate.
Only recently raised
by 0.25%
Equity and BondMarket
Low Returns on
Savings
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GOVERNMENT SUPPORT
CAUSES OF THE BUBBLE
The government supported
property prices in 2008
during the financial crisis.
Property and construction
makes up 50% of China¶s
GDP growth. They would
not have been able to hit the
target growth rates otherwise.
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YUAN UNDERVALUATION
CAUSES OF THE BUBBLE
Not a question of if, but
how much.
Large amounts of hot money
inflows betting on
CNY appreciation.
PPP FEER BEER
40% 15 44% 7 10%
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LOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
UNSTERILISED HOT MONEY INFLOW
CAUSES OF THE BUBBLE
Hot money inflows often
end up in either the equity
or real estate.
Central bank unable to
fully sterilize hot money
inflows since 2004.
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LOCAL GOVERNMENTS
CAUSES OF THE BUBBLE
Local governments depend a lot on
leasing the rights to land for
income. Vested interest in not
letting prices fall.
Resettled residents use the
compensation as down-payment
for a house or two.
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PAST POLICIES AND ITS IMPACT
Late 2009 ² present
Cooling measures to curbsharp price increases
2008 H2 - late 2009
Turnaround to supportproperty market
2004 ² 2007
First round of cooling measures
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PAST POLICIES AND ITS IMPACT
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LOOKING TO THE FUTURE
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PAST POLICIES AND ITS IMPACT
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PAST POLICIES AND ITS IMPACT
Period 2 was less effectivethan Period 1
Period 2 was less effectivethan Period 1
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LOOKING TO THE FUTURE
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LOOKING TO THE FUTURE
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PAST POLICIES AND ITS IMPACT
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PAST POLICIES AND ITS IMPACT
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PAST POLICIES AND ITS IMPACT
2. Fiscal
Cut business and transaction taxes
for real estate sales
Local governments provide cashsubsidies
4 trillion RMB ($585 billion) two-year stimulus package
1. Monetary
In line with interest rate cuts, cut
preferential housing mortgage rates
TURNAROUND TO SUPPORT PROPERTY MARKET
(2008 H2 ± LATE 2009)
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PAST POLICIES AND ITS IMPACT
TURNAROUND TO SUPPORT PROPERTY MARKET
(2008 H2 ± LATE 2009)
Largely ineffective since implementation in 2004
Dampens speculations for short period
For periods of 5 months and less
Buyers not greatly affected by policies
See policies as having limited impact
Property investments seen as extremely lucrative
Excessive liquidity and lack of investment avenues Buying property is only bet
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CURRENT POLICIES - 2010
2. FiscalProperty Tax Trial - To be first rolledout in cities like Shanghai and Beijing
Subsequent transition towardsproperty tax system for whole of China
1. RegulatoryTest impact of fall in house prices upto 60% in key cities
Stress tests on loans to range of
industries
State companies core business not inproperty to leave sector
Down payments and minimum
mortgage rates increase
Banks stop providing mortgages for buyers buying 3rd and 4th homes
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POLICY RECOMMENDATIONS
Implementation of property tax system
Speculators buy properties and leave them empty
Increase carrying cost for them with tax
Land sales alone not a sufficient revenue source
Government can use property taxation as recurring source of revenue
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GLOBAL COMPARISON WITH JAPAN AND USA
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SIMILARITIES
GLOBAL COMPARISON WITH JAPAN AND USA
Rampant Rise in Home Values High Money Supply
Speculation Overconfidence and
euphoria of market participants
Government expansionary
monetary policies
Rising housing value relative to GDP
Inconsistent projection and over valuation of housing fundamentals
values
Sources:
Bank for international Settlements: Determinants for house prices in 9 Asia Pacific Economies; Global Property Guide; Market Oracle; Forbes Asia
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SIMILARITIES
GLOBAL COMPARISON WITH JAPAN AND USA
Source: HSCS analysis
3.83.8
1.81.8
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SIMILARITIES
GLOBAL COMPARISON WITH JAPAN AND USA
Source: HSCS analysis
3.83.8
1.81.8
Sharp rise from 1985-1990 due to massive speculation in the real estatemarkets emerged as a result of macroeconomic policies in the 70s and
uncontrolled increases in the money supply.
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INTRODUCTION POLICIES IMPLEMENTEDPOLICIES IMPLEMENTED
LOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
DIFFERENCES
GLOBAL COMPARISON WITH JAPAN AND USA
CHINA2007- PRESENT
JAPAN1985-1991
US2000-2007
STATUS OF ECONOMY
THEN POTENTIAL GROWTH RATE
HIGH GROWTH
10%
LOWER GROWTH
3-4%
MATURED ECONOMY
3%
PROPERTY PRICE HIKE RATE(CAGR)
PERIOD OF BUBBLE
TOTAL PRICE HIKE
12%
ONGOING
2X
30%
6 YEARS
5X
10%
7 YEARS
2X
MARKET RESIDENTIAL COMMERCIAL RESIDENTIAL
SIZE OF CREDIT TO PROPERTYSECTOR
40% OF GDP 50% OF GDP 80% OF GDP
LEVERAGE LOW HIGH HIGH
LENDERS BANKS BANKS SECURITIZATION
Ozeki, K. (2009). The Chinese Real Estate Market: A Comparison with Japan's Bubble. P imco Asian P erspectives
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INTRODUCTION POLICIES IMPLEMENTEDPOLICIES IMPLEMENTED
LOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
CONSEQUENCES - JAPAN
GLOBAL COMPARISON WITH JAPAN AND USA
Companies in
Financial
Difficulty
Companies in
Financial
Difficulty
Construction
and Real Estate
Companies
Default
Construction
and Real Estate
Companies
Default
Japanese Banks
stuck with NPL
Loans
Japanese Banks
stuck with NPL
Loans
Economic
Growth Affected
Economic
Growth Affected
Many real estate companies and other companies that speculatedwith excess funds in the stock and property market foundthemselves in serious financial difficulties
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INTRODUCTION POLICIES IMPLEMENTEDPOLICIES IMPLEMENTED
LOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
CONSEQUENCES - JAPAN
GLOBAL COMPARISON WITH JAPAN AND USA
Construction & Realestate loan was thehighest
Companies in
Financial
Difficulty
Companies in
Financial
Difficulty
Construction
and Real Estate
Companies
Default
Construction
and Real Estate
Companies
Default
Japanese Banks
stuck with NPL
Loans
Japanese Banks
stuck with NPL
Loans
Economic
Growth Affected
Economic
Growth Affected
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INTRODUCTION POLICIES IMPLEMENTEDPOLICIES IMPLEMENTED
LOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
CONSEQUENCES - JAPAN
GLOBAL COMPARISON WITH JAPAN AND USA
Banking Sector - 35trillion yen of
nonperforming loans,
which represents
about 7% of GDP
(1996)
Companies in
Financial
Difficulty
Companies in
Financial
Difficulty
Construction
and Real Estate
Companies
Default
Construction
and Real Estate
Companies
Default
Japanese Banks
stuck with NPL
Loans
Japanese Banks
stuck with NPL
Loans
Economic
Growth Affected
Economic
Growth Affected
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INTRODUCTIONPOLICIES IMPLEMENTEDPOLICIES IMPLEMENTED
LOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
CONSEQUENCES - USA
GLOBAL COMPARISON WITH JAPAN AND USA
USA home mortgage debt relativeto GDP increased from an averageof 46% during the 1990s to 73% during 2008, reaching $10.5 trillion
Home
Mortgage Debt
Increased
Home
Mortgage Debt
Increased
Went into
Financial Crisis
Went into
Financial Crisis
Economic
Growth
Affected
Economic
Growth
Affected
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INTRODUCTIONPOLICIES IMPLEMENTEDPOLICIES IMPLEMENTED
LOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
CONSEQUENCES - USA
GLOBAL COMPARISON WITH JAPAN AND USA
GDP decreased by 6% annually
Consumption and Investmentdropped
Home
Mortgage Debt
Increased
Home
Mortgage Debt
Increased
Went into
Financial Crisis
Went into
Financial Crisis
Economic
Growth
Affected
Economic
Growth
Affected
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LOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
A GENERIC CONSEQUENCE OF PROPERTY BUBBLE
FUTURE CONSEQUENCES
Increase in Non Performing Loans (NPL) Affects the economy as a wholeBanking Crisis
Household wealth (Consumption)Wealth Effect
Affects Trade (Import & Exports)Affect other countries
Banking Crisis
Wealth Effect
Affect other countries
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LOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
FUTURE CONSEQUENCES
Banking Crisis
Wealth Effect
Affect other countries
CONSEQUENCES - CHINA
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INTRODUCTIONPOLICIES IMPLEMENTEDPOLICIES IMPLEMENTED
LOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
FUTURE CONSEQUENCES
Banking Crisis
Wealth Effect
Affect other countries
CONSEQUENCES - CHINA
Massive NonPerforming Loans
Subprime Crisis
Economic HardLanding
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INTRODUCTIONPOLICIES IMPLEMENTEDPOLICIES IMPLEMENTED
LOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
FUTURE CONSEQUENCES
Caused by policytightening to tackleinflation or negativeexternal shocks
New Loans ExtendedIn 2009
Potential SharpSlowdown in GDP
CURRENT SITUATION - MASSIVE NON PERFORMING LOANS
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INTRODUCTION POLICIES IMPLEMENTEDPOLICIES IMPLEMENTEDLOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
IMPACT ON CHINA - MASSIVE NON-PERFORMING
LOANS
FUTURE CONSEQUENCES
Impact
Considerable Bank loans belongs to LocalGovernment Financing Platforms
Government guarantees China Fiscal position remains quitestrong. Risk is manageable.
Collateralized Property Loans Average loan ratio for the system remaincomfortably low
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INTRODUCTION POLICIES IMPLEMENTEDPOLICIES IMPLEMENTEDLOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
CHINA- MASSIVE NON-PERFORMING LOANS?
FUTURE CONSEQUENCES
8/8/2019 China Real Estate Bubble
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INTRODUCTION POLICIES IMPLEMENTEDPOLICIES IMPLEMENTEDLOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
CHINA- MASSIVE NON-PERFORMING LOANS?
FUTURE CONSEQUENCES
Highly unlikely for China to face the same impact as Japan hadfaced.
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INTRODUCTION POLICIES IMPLEMENTEDPOLICIES IMPLEMENTEDLOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
SUBPRIME CRISIS
Future Consequences
Borrowing increasedsharply
RMB 7.66bn at end of June 2010
17%
of totaloutstanding loans
22% GDP
Local GovernmentFinancing Platforms
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INTRODUCTION POLICIES IMPLEMENTEDPOLICIES IMPLEMENTEDLOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
CHINA- SUB PRIME CRISIS?
FUTURE CONSEQUENCES
Impact
Local Government AssetsLocal Government has sufficient assets
that could be privatized to help service debts
Fiscal Federalism SystemSound fiscal positionCentral Government should be able to bail
out local government
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INTRODUCTION POLICIES IMPLEMENTEDPOLICIES IMPLEMENTEDLOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
CHINA- SUB-PRIME CRISIS?
FUTURE CONSEQUENCES
Highly unlikely for China to face the same impact as USA had faced.
8/8/2019 China Real Estate Bubble
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INTRODUCTION POLICIES IMPLEMENTEDPOLICIES IMPLEMENTEDLOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
HARD LANDING
Future Consequences
Property Transaction
Property Transactiondeclined sharply
Weak property saleslead to slowdown inconstruction activity
Causing hard landingin fixed assetinvestment growth
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INTRODUCTION POLICIES IMPLEMENTEDPOLICIES IMPLEMENTEDLOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
FUTURE CONSEQUENCES
Impact
Serious Damage to Economy
Slow GrowthWeak Job market
Global Commodity prices will plunge asChina has contributed the bulk of marginal
demand for key commodities.
Affecting other Countries Australia & USA
IMPACT ON CHINA - ECONOMIC HARD LANDING
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INTRODUCTION POLICIES IMPLEMENTEDPOLICIES IMPLEMENTEDLOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
IMPACT ON CHINA - ECONOMIC HARD LANDING
FUTURE CONSEQUENCES
Major Australian Exports (2009- 10) (A$m)
Iron ore and Concentrates 25,112
Coal 5,067
Copper Ore & Concentrates 1,719
Wool & Other Animal Hair 1,522
Iron Ore and concentrates are raw materials for construction If property bubble bursts in China, there will be a decrease in demand for Australia
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INTRODUCTION POLICIES IMPLEMENTEDPOLICIES IMPLEMENTEDLOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
FUTURE CONSEQUENCES
Affect their economy & affect other countries
IMPACT ON CHINA - ECONOMIC HARD LANDING
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INTRODUCTION POLICIES IMPLEMENTEDPOLICIES IMPLEMENTEDLOOKING TO THE FUTURE
OF CHINA
LOOKING TO THE FUTURE
OF CHINAIS THERE A BUBBLE?IS THERE A BUBBLE?
FUTURE CONSEQUENCES
Highly likely for China to face the same impact as Japan or USA hadfaced.
IMPACT ON CHINA - ECONOMIC HARD LANDING
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LOOKING TO THE FUTURELOOKING TO THE FUTURE
CONSEQUENCES FOR CHINA
FUTURE CONSEQUENCES
Greater Impact on Economic Growth thanFinancial Stability
Impact on the banking system is less likelyBanking Crisis
Consumption could be hit Sales of big-ticket items will be affected Negative wealth effect will also undermine
consumer confidence
Wealth Effect
Commodity exporting countries affectedAffect other countries