I hate to write repeatedly on Hong Kong Real Estate, because I have written on it over and over again. Just because I am familiar with this topic does not mean that I love to write on this, especially this is actually a rather insignificant topic, though I cannot help but to write again, because this involves something more serious.
The International Monetary Fund said Hong Kong‘s accelerating asset inflation risks causing a bust that leads to deflation and an extended economic “downturn,” and urged further measures to rein in property prices.
There is very little wonder that this will certainly happen. We have got there before actually, after 1997. And there is very little wonder how such a real estate bubble will lead to the burst which will produce another prolonged recession because of 5 reasons I identified which made real estate bubble so hard to cure.
But Hong Kong is only a small place and economy. Yes, the real estate bubble will burst and lead to prolonged recession in Hong Kong, I knew that. But so what? Even in the Asian Financial Crisis where the whole of South East Asia was in recession, the other parts of the world were just fine. So what is the significance of Hong Kong?
Now that people are very much concerned about European debts and China tightening. The European debt crisis is very much in sight, so anything that happens there will not surprise me. The China inflation problem is also very much mentioned, so if there is really monetary tightening in some form or another, it will not surprise me either. What people now do not seem to appreciate is what the real estate bubble in China means.
I am very confident that real estate bubble burst will lead to a deep recession (which is not something to be happy with if you know that the economy is going to crash). Look at the United States now, and many European countries. I have argued endlessly elsewhere that China is posing the biggest risk to the economy which is now under-appreciated. Now people only fear the tightening in China would drag down global growth, but do not realise the fact that monetary tightening is a rather blunt tool in fine-tuning inflation. At some point next year or so, the tightening will reach a point where the real estate bubble is really going to burst.
Some weeks or so ago, some strategists at Goldman Sachs or something (if I am not wrong) thought that the global economy will be decoupled, with strong growth in emerging economies and slow growth or even double dip recession in developed countries. Now I will reiterate my point that whether there will be decoupling of this sort is no longer relevant. The Chinese economy is poised to a recession as the real estate bubble will deflate. People shall not ask whether there will be decoupling where emerging economies are doing great even the developed countries are struggling. Rather, they will be asking whether the developed countries can grow their economy if Chinese economy is headed to a recession.
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