The next Chinese financial crisis
For the past ten years, I could usually find at least one article a week, written by some sage analyst, warning that some part of China’s financial sector was readdy for imminent collapse. I mention this up to put Jamil Anderlini’s story in the Financial Times in the proper perspective: Chinese officials and government economists have ...
For the past ten years, I could usually find at least one article a week, written by some sage analyst, warning that some part of China's financial sector was readdy for imminent collapse. I mention this up to put Jamil Anderlini's story in the Financial Times in the proper perspective: Chinese officials and government economists have warned domestic banks to tighten their mortgage lending criteria after the US government’s action to prop up Fannie Mae and Freddie Mac, the giant mortgage agencies. Liu Mingkang, China’s top banking regulator, has in recent days urged the country’s state-owned commercial banks to beware of risks in the real estate sector and ordered them to tighten loan approval processes. Others among China’s policy community have also begun to express concerns about the health of the country’s banks amid signs a once-booming property sector has begun to slow. Average house prices in China’s 70 largest cities were up 10.2 per cent from a year earlier by the end of June, according to official figures. But sales volumes in important cities, including Shanghai, Beijing and Shenzhen, have fallen precipitously in recent months. Some analysts fear steep price falls ahead. “If financial institutions of Freddie Mac and Fannie Mae’s calibre could get into such a bad situation, then what does that mean for Chinese financial institutions?” asked Yi Xianrong, a prominent economist at the China Academy of Social Sciences. “The only reason we haven’t seen similar problems here is because property prices have continued to rise rapidly.” Migration into the cities combined with 10% annual growth combined with a 40% savings rate makes me think this concern is overblown, but I'm willing to be convinvced otherwise by my dear readers.
For the past ten years, I could usually find at least one article a week, written by some sage analyst, warning that some part of China’s financial sector was readdy for imminent collapse. I mention this up to put Jamil Anderlini’s story in the Financial Times in the proper perspective:
Chinese officials and government economists have warned domestic banks to tighten their mortgage lending criteria after the US government’s action to prop up Fannie Mae and Freddie Mac, the giant mortgage agencies. Liu Mingkang, China’s top banking regulator, has in recent days urged the country’s state-owned commercial banks to beware of risks in the real estate sector and ordered them to tighten loan approval processes. Others among China’s policy community have also begun to express concerns about the health of the country’s banks amid signs a once-booming property sector has begun to slow. Average house prices in China’s 70 largest cities were up 10.2 per cent from a year earlier by the end of June, according to official figures. But sales volumes in important cities, including Shanghai, Beijing and Shenzhen, have fallen precipitously in recent months. Some analysts fear steep price falls ahead. “If financial institutions of Freddie Mac and Fannie Mae’s calibre could get into such a bad situation, then what does that mean for Chinese financial institutions?” asked Yi Xianrong, a prominent economist at the China Academy of Social Sciences. “The only reason we haven’t seen similar problems here is because property prices have continued to rise rapidly.”
Migration into the cities combined with 10% annual growth combined with a 40% savings rate makes me think this concern is overblown, but I’m willing to be convinvced otherwise by my dear readers.
Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast. Twitter: @dandrezner
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