Monday, February 1, 2010

The Next Real Estate Bubble?

Chinese regulators have begun restricting new loans in an effort to curb the incredible growth of the Chinese real estate market and to prevent a US style real estate meltdown in the future. Last year Chinese banks advanced 9.59 trillion yuan(1.4 trillion dollars) in new loans which helped increase the Shanghai Composite Index by 80% and cause real estate prices to rise to their biggest gain in 18 months. In reaction to government lowering the amount lending, the Shanghai Composite Index has slumped 7.9% since the beginning of the year. It is difficult to tell whether the Chinese government is preventing a future crises or a crisis is already brewing. The Chinese government exerts a large amount of control over its economy; with an almost fixed exchange rate of the yuan with US dollar and reported consistent economic growth in spite of the global financial crisis. Information supplied by the Chinese government needs to taken with a grain of salt and investors such as Jim Chanos of Kynikos Investments, who successfully bet on the fall of Enron, are already betting on a bubble bursting in China.

By: Jason Wu - WFU MBA 11'

For further information, please see full Bloomberg article: