Greetings once again to you music lovers, thrill-seekers, conversationalists all across the fruited plain. Today’s lunchtime read looks at the China real estate problem. Reshma Kapadia at Barron’s writes that the troubles facing China’s economy are substantial but is unlikely to push China into a Lehman-style crisis…(Barron’s)
Defaults could rise as tighter liquidity stresses developers and some banks could also suffer, though Prasad notes that many are state-owned and the government can easily infuse liquidity, limiting the risk of a systemic financial crisis.
Plus, unlike the U.S. global financial crisis, the amount of leverage propping up speculative investments is much more limited and households’ balance sheets and high savings rates act as a buffer, Prasad says. Down payment requirements are also so large that even a significant further decline in prices wouldn’t put a lot of mortgages underwater, he adds.