China Real Estate Economics

Do the math: the total market value of Chinese real estate is so large compared with GDP, money supply, and actual social wealth that if even a small fraction of people cash out, there may not be enough outside wealth to take over their positions. Once you see it that way, the game becomes clear: it is a game of who can run first and still get out in time.

Reality

China’s real-estate bubble is enormous. It looks very much like a Ponzi scheme. So what exactly has made the Chinese housing market so expensive?

A Sandbox Projection Of The Domestic Economy

Open the monetary floodgates -> housing prices surge -> sell land to solve local-government debt crises -> drive RMB savings into the housing market -> the State Administration of Foreign Exchange loses its biggest “opponent”, so foreign exchange becomes temporarily safer -> the exchange rate falls sharply, locking up the remaining funds -> tighten money in step with the United States -> banks transfer most risk through CDS and the bubble is punctured, housing prices fall sharply -> investors and late buyers cannot cash out, so RMB funds are successfully locked in -> land finance collapses -> a property tax is introduced, completely trapping harmless small investors -> drive the remaining capital back into real industry, preserve employment, consolidate political power -> internationalize the RMB.

So Then

Run.