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Foundations sink while prices soar in China bubble
By Wang Yong |
October 13, 2010, Wednesday
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Print Edition
Print Edition
BOTH China and America have brewed bubbles in real estate with easy money, but in China's case, it's double bubble - spiraling prices plus shaky buildings.
Many Chinese have found themselves buying into not only high housing prices, but also low-quality construction of many apartment buildings.
In America, there's only one bubble - the price bubble - in real estate. When the American housing bubble bursts and siphons off individual financial assets, the "real estate" - the houses - stay solid on the ground, promising future use or trade for possibly a century to come.
In China, many new buildings - especially those built after 2000 when housing prices began to go wild - have been found to be built on shaky foundations even before the price bubble possibly bursts.
The Oriental Morning Post yesterday reported that many new villas - delivered to owners only last month - in Shanghai had started to sink due to poor foundations. Those villas, worth 7 million yuan (about US$1 million) each, had sunk around 10 centimeters and the walls were leaking. CCTV (China Central Television) reported yesterday that Beijing began to pull down a number of buildings on Sunday because of their shoddy quality.
A local real estate company began construction on the buildings last December. In April central government inspectors noticed severe quality problems with the concrete used in the buildings intended for low-income buyers.
These are just the two of the latest ongoing scandals about China's construction quality over the past decade, a decade dominated by unscrupulous real estate developers and conniving local governments - both racing to the bottom to maximize profits at the expense of public welfare.
On reading Joseph Stiglitz's lead opinion article today ("Time for the Fed to learn from past mistakes"), I could not but be amazed at how closely China has followed America in excessive lending leading to a housing bubble. Stigltiz has this to say: "Rather than spurring investment in plants and equipment, low interest rates inflated a real estate bubble."
In China, interest rates are so low that they have become negative (given increasing consumer prices) many times in the past decade. In recent years, real estate has absorbed about 20 percent or 30 percent of China's annual fix-asset investment.
In America, easy money was supposed to spur investment in plants and equipment, and in China, it was supposed to spearhead high-tech and new-energy development.
Both failed to fully achieve their stated goals, because easy money demands easy returns - it has no patience for long-term development. Such is the short-sightedness of any economy largely abandoned to market forces.
But if both America and China are short-sighted in their creation of housing bubbles, America is far-sighted at least in one aspect: it doesn't build houses that last only one year or two as you so often see in China today.
Many Chinese have found themselves buying into not only high housing prices, but also low-quality construction of many apartment buildings.
In America, there's only one bubble - the price bubble - in real estate. When the American housing bubble bursts and siphons off individual financial assets, the "real estate" - the houses - stay solid on the ground, promising future use or trade for possibly a century to come.
In China, many new buildings - especially those built after 2000 when housing prices began to go wild - have been found to be built on shaky foundations even before the price bubble possibly bursts.
The Oriental Morning Post yesterday reported that many new villas - delivered to owners only last month - in Shanghai had started to sink due to poor foundations. Those villas, worth 7 million yuan (about US$1 million) each, had sunk around 10 centimeters and the walls were leaking. CCTV (China Central Television) reported yesterday that Beijing began to pull down a number of buildings on Sunday because of their shoddy quality.
A local real estate company began construction on the buildings last December. In April central government inspectors noticed severe quality problems with the concrete used in the buildings intended for low-income buyers.
These are just the two of the latest ongoing scandals about China's construction quality over the past decade, a decade dominated by unscrupulous real estate developers and conniving local governments - both racing to the bottom to maximize profits at the expense of public welfare.
On reading Joseph Stiglitz's lead opinion article today ("Time for the Fed to learn from past mistakes"), I could not but be amazed at how closely China has followed America in excessive lending leading to a housing bubble. Stigltiz has this to say: "Rather than spurring investment in plants and equipment, low interest rates inflated a real estate bubble."
In China, interest rates are so low that they have become negative (given increasing consumer prices) many times in the past decade. In recent years, real estate has absorbed about 20 percent or 30 percent of China's annual fix-asset investment.
In America, easy money was supposed to spur investment in plants and equipment, and in China, it was supposed to spearhead high-tech and new-energy development.
Both failed to fully achieve their stated goals, because easy money demands easy returns - it has no patience for long-term development. Such is the short-sightedness of any economy largely abandoned to market forces.
But if both America and China are short-sighted in their creation of housing bubbles, America is far-sighted at least in one aspect: it doesn't build houses that last only one year or two as you so often see in China today.
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