Chart of the day: Why China will survive a real estate bubble burst

Economist story subtitled, "China's economic boom can survive a property bust.

First reason is the fact that most Chinese mortgages are for less than half the house's value, so hard to go "underwater" (unlike in US, where the habit became, between first and second mortgages, one of being 100% in debt, so any drop in prices immediately put a lot of people underwater--i.e., owing more than the house was now worth).

Second reason shown in the chart:  why the yuan value of all mortgages in China is skyrocketing, as a percentage of GDP, the total still remains quite low (less than 16%).  In the US, the share is more like 80%, so a lot more potential impact when a bubble bursts.

Good news for China and the global economy.

Comments

[srm]

You are comparing apples to oranges here. Whereas bad underwriting and fraud were rife in non-recourse US mortgages and overheated real estate markets, the extent to which construction and property price increases have driven Chinese growth and taxes is the issue here. In trying to claim that a property bust won't adversely affect China because it won't result in the mortgage mess the US has had, you are fighting yesterday's war. Next property bust will have a much different fallout profile. I can assure you there is a bubble in the Chinese cities and eastern seaboard right now when you look at different valuation metrics. The key is how the fallout and cool down is managed and how the losses are distributed. Even today with a strong property market the last 5 years in China, the weak Yuan and US-imported monetary policy helps banks earn their way out of yesterday's bad loan losses

[Tom Barnett]

Fine analysis, and all stuff noted here in the past.

I think you're trying to hard to critique my alleged intent here. The comparison was simply a scope-of-potential-impact issue (they borrow less per home, mortgages are a bigger share of GDP here). I did not claim the underlying causality was the same.

Applaud your vigor, but understand I don't repeat--laundry-list style--every possible point on every possible issue on every possible post.