The property market is always a hot topic, but could a crash be on the way, derailing 29 years of continuous growth and creating an Australian recession?
How stable is the Chinese banking sector? With some $3 trillion of municipal debt collateralized against rapidly declining real estate values, how will the government prevent a major recession?
Well at the moment not very stable. However, I saw a Goldman Sachs report 5 years a go where it stated that the Chinese economy will surpass the US economy by 2020. The Chinese GDP is already USD 13.4 trillion in 2013. In the mid term the Chinese economy will have its downs – as you write e.g. regarding declining real estate values – but certainly also its ups later on. The government Debt of China is 23% of GDP which is much better than that of the US or (southern) European countries. The Chinese social fabric and economy needs to mature. And it will. So will its banking sector mature over time. I wouldn’t invest in it myself by the way now.
Regarding your 2nd question.
In a Worldbank report I read that the banking assets are 234% of GDP in 2010. or 94 trillion RMB (which is like 15 trillion USD).
A measure could be that houseowners bring more equity to the table before they buy a house. You can think of more reforms: savings, better supervision etc.
There is this concept of “beautiful deleveraging” coined by Ray Dalio.
Deflationary forces of debt reduction and austerity then are offset by
– a falling debt/income ratio
– nominal GDP growth above nominal interest rates.
I think the Chinese understand this stuff.