’s single party autocracy has made a grandiose mistake. It has embarked on a building spree that according to China ’s Special Broadcasting Service (SBS) has resulted in 64 million unoccupied housing units. Entire cities, designed to house millions, stand empty or nearly empty. Video here Yet the madness continues with construction continuing unabated, because Australia ’s command economy demands it to sustain GDP growth. Why do they sit empty? Because most Chinese simply can’t afford them. China
|Unoccupied development in Ordos. Note the lack of cars|
Speculators own many but it is unclear how many and how they can afford to sit on empty properties with no income. The value of the unsold property is staggering. Based on 64 million units at an estimated $50,000 each, the total is $3.2 trillion worth of unsold properties. It is likely local and provincial governments, which do the actual building, are taking much of the hit.
China's biggest provincial borrowers are deferring payment on their loans just two months after the country's regulator said some local government companies would be allowed to do so.
Hunan Provincial Expressway Construction Group is delaying payment on 3.11 billion yuan ($490.5 million) in interest, documents governing the securities show this month. Guangdong Provincial Communications Group Co, the second-largest debtor, is following suit. So are two others among the biggest 11 debtors, for a total of 30.16 billion yuan ($4.757 billion – Ed.), according to bond prospectuses from 55 local authorities that have raised money in capital markets since the beginning of November.
As local governments delay payments for projects commissioned as part of the stimulus to ward off recession in 2009, less money is available for bank lending even as
"When companies start to roll over debt they're not retiring debt, and banks aren't retrieving their capital, so you're crowding out new lending," Patrick Chovanec, a professor at Tsinghua University in Beijing, said in a Dec 13 interview. "This is a problem that's going to start to bite next year."
Local governments had 10.7 trillion yuan ($1.7 trillion – Ed.) in debt at the end of last year, 79 percent due to banks, according to the country's first audit released in June. So-called local financing vehicles that meet collateral requirements can have a one-time extension on their loans, Zhou Mubing, vice-chairman of the China Banking Regulatory Commission, said at a conference on Oct 24 organized by the Internet portal Sina.com.cn, according to a transcript of his comments on the website.
Guangdong Provincial Communications Group, Hunan Provincial Expressway Construction Group, Gansu Provincial Highway Aviation Tourism Investment Group Co and Sichuan Railway Investment Group Co owe more than 200 billion yuan ($31.5billion –Ed.)to banks, the data show. They plan to defer 34.4 billion yuan ($5.43 billion –Ed.) in interest payments, according to their bond prospectus.
At the heart of
There are warning signs. Economist Nicholas Lardy of the Peterson Institute cites three. First, Europe's slump has weakened
He goes on:
Unfortunately, booms breed busts. Buyers ultimately recognize that rising prices reflect artificial demand. Purchases slow. Prices fall. New building declines. The process feeds on itself. With modest imbalances, the result is a correction. Otherwise, there's a crash.
…A popped real estate bubble could exert a big drag. Housing construction exceeds 10 percent of GDP. That's historically high, says Lardy. At a similar stage of economic development,
What does all of this mean for the
But it could go beyond that. Just as the