Business / Industries

Property bubble will not wreck China's economy

(Xinhua) Updated: 2014-04-28 07:46

Doom-mongers

In spite of the increasing risks, economists said a full-blown property meltdown was unlikely, calling those foreseeing a crash in the whole economy "doom-mongers".

There has been no shortage of prophets who expect China's economy to crash. Former Morgan Stanley economist Andy Xie compared China's property and stock markets to a "horror movie", which "people like to watch, but don't want to be in", according to a Reuters report earlier this month.

Xie is among the more moderate of the bearish voices that have called a 'China crash' since the late 1990s. Gordon Chang, a Chinese-American lawyer and columnist has been predicting a crash for the past 15 years or so.

Risks for the Chinese economy have been exaggerated. Even the crisis like the subprime mortgage one in the United States had not knocked down the US economy, Wang Xiaoguang said.

"At least for now, the housing market risks are ordinary ones in the process of economic growth. For those describing the risks in a way to make people panic is totally out of ulterior motives," he said.

Concerning sharp declines in home prices of some cities, led by Wenzhou and Erdos, Wang said, "At least for now, the risk exposure stemming from the two cities seems to be not so big."

As to whether the property risks would deal a lethal blow to the Chinese economy, Wang said, "I don't think they are systemic risks. They are actually regional and structural risks."

Yu Yongding, an economist at the Chinese Academy of Social Sciences, also dismissed China's real-estate price bubble as a catalyst for a crisis, as the down payment to buy a home in China exceeds 50 percent.

Given that property prices are unlikely to fall by such a large margin, and subprime mortgages account for 20 percent of the banks' total assets, the bubble's collapse would not bring down the country's banks, he said.

In case the bubble bursts, plummeting prices would attract new home buyers in major cities, causing the market to stabilize, predicted Yu, adding that the urbanization plan unveiled recently would also help prop up the market.

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