The paper "China’ s Housing Bubble" is a perfect example of a macro & microeconomics case study. China has a property bubble whose effects would be disastrous to its own economy and that of the Globe (Youqin, 2004, 50). Many experts think that China’ s housing bubble is a delicate one that can burst at any time. Kenneth Rapoza also writes about this Bubble. This essay will discuss the economic effects of China’ s housing bubble. It will also discuss two articles written by Kenneth Rapoza. The essay will therefore analyze how the issues discussed in the second article “ China’ s non-bubble housing bubble’ , resulted from the issues discussed in the second article “ How China’ s Housing Bubble is Different. ” Economic Dangers Posed by China’ s Housing Situation The property bubble in China has been rated as carrying a bigger danger than the asset price bubble.
The bubble is caused by over-investing in capital expenditure and building an economy that is led by exports. A boom in capital investments has created a demand that is not easy to sustain. China has a lot of capital investments and its boom depends on this.
Exports support capital investments a lot (Zheng and Kahn 2008, 746). A deterioration in exports means the economy can be badly affected. Capital investment and exports can both go down and this may result in reduced demand. When regional banks use bank lending instead of tax revenue for financing their public works projects, they have no returns on investment. This makes it hard for them to service the debts hence banks are left with huge bad loans. Speculating investments in real estate are also becoming bad with the bursting of the asset price bubble.
Banks stand to suffer very badly if the central bank does not support its subordinates in the regional banks stand to suffer because these subordinates are the ones that can create a massive deficit in the budget. In tier 2 and tier 3 cities, the prices of property are not very much costly. However, one cannot rule out the possibility that the prices of property can be very much inflated in the coming few years. If this happens then there could be a crash (Wing, Ming and Sachs, 2012, 78).
Qingyuan Z. 2011. Applied Economics, Business and Development: International Symposium. Springer.
Wang, Y.P. (2001). “Urban Housing Reform and Finance in China: A Case Study of Beijing.”Urban Affairs Review 36(5) pp. 620-645.
Wing W., Ming L., Sachs, J.D. 2012. A new Economic Growth Engine for China: Escaping the Middle Income Trap by Not Doing More of the same. World Scientific.
Youqin, H. (2004). “Housing Markets, Government Behaviors, and Housing Choice: A Case Study of Three Cities in China.” Environment and Planning, Vol. 36, pp. 45-68.
Zheng S, Kahn M.E 2008. Land and residential property markets in a booming economy: New evidence from Beijing, Journal of Urban Economics 63, 743-757.