China’s economic growth is slowing down, and the People’s Bank of China has come up with a policy to deal with that. And by “deal,” we mean either “possibly help in the short term” or “blow everything into little bits.”
Basically, it’s creating a housing/property bubble.
Anyone selling a house in the bigger, “top-tier” Chinese cities like Shenzhen and Shanghai is getting rich. Prices in Shenzhen rose 50% in the last year, according to Bloomberg. As we reported a few days ago, that bubble is coming from cheap new credit — and printed money — that the PBOC is pushing out into the market in order to ease the country’s slowing growth.
HSBC’s Head of China Research Zhi Ming Zhang put that into a chart today, which we have annotated in orange:
The point is that the January credit float that the PBOC pushed into the economy is bigger than the liquidity rescue package it injected in 2009, after the 2007/2008 financial crisis (which, if you remember, was triggered by the collapse of the mortgage/property market in the West).
China’s problem is that the more its GDP declines, the less effect all that cheap new money has:
(TSF stands for “total social financing,” which is basically loans to private, non-bank companies and individuals. It’s a measure of private credit activity as opposed to the loans given to state-owned enterprises and branches of government.)
It does have one obvious effect, which my colleague David Scutt noticed today. Cheap loans let people buy a lot of houses, and that drives up the price:
Here is the long-term data, as tracked by Global Property Guide:
Zhi Ming Zhang says the price increases are the result of “speculative forces,” which is a sort of analyst euphemism for a bubble:
The credit growth has fed into rising asset inflation, notably in property prices and especially those of first tier cities. Following Shenzhen’s lead from last year, Shanghai’s residential property prices rose 24% during the first two months of the year (Fig 3). There are signs that speculative forces are at play, aided by the credit boom, a flourishing shadow banking sector and P2P (person-to-person) financing.