China's Real Estate Bubble Finally Bursts

(Photo by Keith Bradsher for The New York Times)

[The New York Times reports that only 50 of the 780 apartments above have been occupied]

Bears like Stephen Roach, an economist, were saying there was a real estate bubble in China almost 3 years ago. Well, it took a while but I think we can safely say that the bust has finally arrived.

China’s real estate bubble has turned into a bust in many cities, complicating the government’s effort to manage an economic slowdown here.

As China’s real estate boom slows, construction projects are stalled for lack of financing.

The pain is obvious in Liu Shirong’s apartment development. Mr. Liu, a shy electrical engineer doesn’t mind living in a complex where only 50 of 780 apartments are occupied and the swimming pool is eternally empty. “I have peace and quiet at night,” he said.

But the vacant apartments are a nightmare for the mainly speculative investors who bought them a year ago. And nearby, only one of the two dozen towering cranes was still in operation on a recent afternoon.

Did someone say "speculative investors"? Isn't that an oxymoron?

The government has been trying to cool the bubble for years but seems to have failed. Now that it has failed on the way up, it is trying to redeem itself by smoothing the collapse. An unenviable task. Ask the US government. Or the Irish government. Or the British government. Or... you get the point.


In my opinion, there are two big bubbles in China. One is so-called fixed infrastructure (real estate, roads, bridges, etc.) The real estate bubble does not seem as large as in America, Ireland, UK, Spain, or in numerous other countries. The other is manufacturing. There are just way too many factories (many of them inefficient and obsolete) and I suspect there will be a consolidation phase fairly soon. I really, really, hope that if it ever comes to this that it will be a smooth transition but if the manufacturing bust is severe, it might mean the end of the Chinese Communist government.