All indications are showing us that short-term investment in China is not advisable, as government initiatives to slow down the economy are proving extremely effective. We see property developers losing money, a credit crunch looming, and share prices dropping in China. Selling is the flavor du jour, as doom and gloom sentiments grow on the Chinese property market. How do we know a market crunch is looming?
Chinese share prices reached a peak in 2007, and since then many of them have dropped around half their value. We know that usually, the general economy and property development and investment is intimately linked, so this does not bode well for China property development. We can see companies closing branches around the country, and a sharp increase in the number of homes and sites for sale, along with a resulting drop in prices. These factors combined make it seem that a market crunch in China is on the cards for the next year.
There are stark similarities with the Chinese situation and the situation in the US over the past year which has been so widely reported on, and is understood globally. There is a mirror image of the US's state of affairs in China; housing prices are going down, and developers are losing money, with several on the verge of bankruptcy. These solid indications, along with the anticipated and past effects of the Chinese government's initiatives to slow down the economy, make a market crunch in China likely.
The government is one of the factors that has the biggest impact on the economy, especially in China where regulations are tighter, and many market forces are more intimately controlled by and linked to government activities. They have taken measures like raising the interest rate six times in 2007, as well as tightening credit guidelines. This tightening has also led to a drying up of other sources of investment money, apart from bank loans. The minimum reserve ratio of commercial banks has been increased due to government action, and they have also modified the tax system to try to slow down the economy. However, all of these actions seem to be having an intendedly successful effect.
You can see the volatility in the fact that only a week after some of the country's strongest gains in the property sector were recorded, the market started showing signs of a significant slowdown.
Chuanghui, one of the country's largest property development firms has posted huge losses in recent months. They have closed 1000 of the firm's 1800 outlets across the country, and seem to be taking desperate measures to try to stay in the black. Company representative Zhang Min blamed the government initiatives mentioned earlier - he gave indications that the government misjudged in gauging that the creation of a bubble was a larger concern than forcing a slowdown would have been. The bubble has not eventuated, and the liquid that was to be used to make it is fast drying up. "The market has taken a turn for the worse, and our deals have dropped a lot", said Min.
It would seem that property investors interested in the Chinese property market would be wise to keep their eyes on the country, but perhaps their wallets out of it in the short term. Of course, those interested in long-term investment in China have different advice!
![[Valid RSS feed]](http://www.NewAgeLivingArticles.com/images/icon_Rss.png "XML Feed For RSS"){kind=icon}
Category Rss Feed
Print This Article
Add To Favorites
