With gross debt at 282% of GDP, China had engineered a stock market bubble to rescue its highest cooperate debt in the world in 2015. This time Mr. Zhou Xiaochuan choose to pump up the housing, with Shenzhen, Shanghai and Beijing price up 67%, 30%, 17% in March 2016 and housing loan at historical high.
Will this work? We believe this only will accelerate the bubble burst for the following reasons:
1. about 1 trillion USD exit China since Jan 2015 and about 70% high-value business people hold foreign passport, when its M2 standing at staggering ~60% of the world total and RMB has strong devaluation pressure, further stimulation or printing to invest (15% new cash printed each year), will only increase currency devaluation pressure and will accelerate the wealth outflow. Buying off-shore cooperate asset is in fashion for wealthy Chinese company is a hint. Housing price up divergence with China stock market is another: private money don’t believe housing can save economy when wealth are flooding out.
2. 70% High value business people hold foreign passport is a proof that wealthy are more likely moving asset abroad, the latest housing bubble will accelerate the wealth exit. Q1 2016 government invest jump but private investment sharply drop is another sign of weakening confidence of business people:
We would like to think the latest house surge will end up the same fate as the 2015 China stock bubble: both will accelerate the wealth exit from China. Once a currency has strong devaluation pressure, printing more cash will only add fuel to fire.
Korea and Taiwan business continuously drop in March 2016 are other proof. We also expect USD to strength from end of April and Chinese RMB will continue to face huge pressure. For US interest or Wall-street interest, it is probably better to wait to buy after global crisis and global debt deleverage.
Our source indicates Shenzhen’s house price already drop 6% from the peak, crisis is imminent. No wealthy people want live in smoke and high PM-2.5.
April 20, 2016.
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