Double Bubble Trouble Predicted for China

April 29th, 2014

The Economist has predicted that a second property bubble may be in store for China. The publication noted that the first bubble burst in the spring of 2011, when prices in nine major cities fell. The Wall Street Journal also declared at the time that the country’s big property bubble may have popped, and recently suggested that the property boom in China is all but over.

The Economist, however, believes that the Chinese bubble is set to burst again. While prices peaked in 2011, they recovered just one year later. They have continued to rise in 69 out of the 70 cities tracked by the Chinese government, even as residential sales dropped by 5% in January and February 2014.

Statistics from the bank Nomura suggest that property is now a systemic risk for the Chinese economy as prices fell by 3.8% compared with a year ago. China has a ‘misallocated housing’ market, with too much stock in some areas and too little in others. This means that at any given moment there is probably a bubble bursting somewhere in China.