Early in the debate on China, the most vehement bear was probably Jim Chanos, who in a Fortune Magazine article called China “Dubai Times 1000.” Most analysts in this debate — along with the Chinese government — are focusing on the property market. While many of the broad arguments are well known — overlending, property as proxy for savings, rising interest rates — my belief is that analyzing China’s property market using macro data provides only part of the picture. Many of the most pressing issues are really best understood as an issue of the extent of local debt.
Who’s Paying for China’s Property Bubble?
CRC asked 132 property owners in China what was their source of capital for the real estate they acquired? In addition to personal savings, most buyers borrowed funds from a complex array of third party lenders. This reliance on “friends and family” and “other” sources of capital is a form of non-bank lending that is little understood and is a potential liability in the financial system.