Economics: The end of China’s property bubble
China is once again trying to curb excessive housing investment
China has invested far too much in property since 2010. The last attempt at deflating this investment bubble threw the economy into a deflationary spiral and nearly into recession. This time policymakers might be more successful.
The nature of the bubble has changed
This isn’t an asset price bubble. Housing supply expanded to meet rising speculative demand, curbing prices. But most new supply has been financed by pre-sales since 2015. If construction stops, it would cause financial losses for households.
The policy goal is a gradual deflation of the investment bubble
Developers’ access to credit will be eased so they can finish their projects. Building more infrastructure should mitigate the spillovers to other sectors. Most challenging will be to make housing a less attractive savings vehicle over the longer run.