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The impact of China’s real estate bubble

Nancy Marshall-Genzer Aug 4, 2010

The impact of China’s real estate bubble

Nancy Marshall-Genzer Aug 4, 2010


Bob Moon: We’re dealing with our own housing bubble. Europe is still coping with the same kind of woes. And now comes the strongest indication yet that the Chinese are bracing for a wild ride. Many experts believe that country is threatened with its own real estate bubble, and it’s already bracing for what happens if it pops. What might that mean for the rest of us?

We asked Marketplace’s Nancy Marshall Genzer to take a look.

Nancy Marshall Genzer: The headlines say it all. On June 11, the China Daily warned “Property Prices Heading For a Slump.” Prices had risen 50 percent in some cities. Now, they’re expected to fall. Possibly a lot.

Kenneth Rogoff is a Harvard economist.

Kenneth Rogoff: They’ll probably fall at least 30 percent by the end of the year, at least in the major cities.

That’s about how much housing prices dropped in the U.S. But China has no subprime loans. Most Chinese make down payments of 30 to 50 percent. Now, the government is restricting access to credit, in order to let the air out of the bubble slowly. But if China pops its bubble with a huge sneeze, will the rest of the world get a cold?

Robert E. Scott of the Economic Policy Institute says, not necessarily.

Robert E. Scott: China doesn’t have substantial imports. That’s really the mechanism through which the rest of the world gets a cold.

Scott says when the U.S. recession hit, our imports dropped, and the foreign producers of those products suffered. Still, the global economy would take a hit if China’s export machine slowed down. Chinese factories wouldn’t need as much oil or iron ore. Commodity prices would fall — that would affect countries like Brazil. They, in turn, would buy less from the U.S.

Barry Naughton is a China specialist at U.C. San Diego.

Barry Naughton: China is now increasingly part of a chain of transactions. So the knock-on effect from Chinese growth is actually quite large for the United States.

And there would be less tangible effects of a bursting Chinese housing bubble. Many U.S. companies expect most of their future growth to be in China. Their stock could take a hit if investors think the Chinese market is drying up.

In Washington, I’m Nancy Marshall Genzer for Marketplace.

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