(OPINION) After China Evergrande was officially declared to have defaulted on its bond interest repayments last week, shares in fellow property developer, Shimao, plummeted on Tuesday.
According to Express-News, Amid the uncertainty over the future of China Evergrande and Kaisa Group Holdings, Shimao’s overall share price has fallen by 19.92 percent on the Hang Seng stock index. On Friday, the developer’s stock price had been rated at 8.06 but fell to 5.67 on Tuesday. Trading was also halted on one of the company’s yuan bonds after prices tumbled, Bloomberg reports.
Gulf News stated, With such irrationality driving the property market and prices, dire warnings have come from across the board. Independent financial analyst Andy Xie says China’s property and stock markets are a bubble that will burst when inflation accelerates in 2011.
Huang Yiping, professor at the Chinese Centre for Economic Research at Peking University, warns that despite the prosperity brought by a booming real estate market, the economy could be under threat of collapse if it depends excessively on the property sector, high current account surplus, and a handful of monopolistic state enterprises.
The government is inching towards a crackdown on the property market. But how far can it really go? Home prices in 70 major Chinese cities rose 5.7 percent from a year earlier in November, the fastest pace in 16 months. The property market was a prime driver of the economy’s 8.9 percent growth in the third quarter.
All this puts the government in a real dilemma. China’s leaders can’t make major policy changes because they are preoccupied with economic growth and social stability. They attempt to address surging property prices, yet dare not take drastic measures for fear of hitting the market too hard.
Japan’s market crash culminated in a massively inflated asset price bubble which lasted from 1986 through 1991 in which real estate and stock market prices were greatly inflated. Three decades after the Japanese market crash, the country still has not recovered from its highs.
According to martinhladyniuk.com, Based on current economic indicators, the crash in Japan will pale in comparison to what’s about to happen in China. Many experts say the crash in China has already occurred but that we have yet to see the full devastating consequences of the government’s attempt to deflate the real-estate bubble without bursting it.
Just as the 2008 financial crisis was years in the making, China’s crash may take months or possibly even years to fully develop. China’s real estate sector is massive. According to Goldman Sachs Group Inc., the total value is double the US residential housing market hitting $52 trillion in 2019. The real estate market accounts for nearly a third of China’s gross domestic product (GDP.)
