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So is China in a housing bubble? In a recent paper, Christian Dreger and Yanqun Zhang say yes:

Our results indicate the presence of a house-price bubble. In Figure 1 it can be seen that increasing imbalances have emerged over the past two years. For example, real house prices in Shanghai have been 28% above the long run equilibrium in 2008, and 35% in 2009. While the evidence is similar for Beijing, the increase is more spectacular in Shenzhen….In general, the bubble is more pronounced in the special economic zones and the south-eastern coastal regions. Overall, the size of the bubble is 20% in 2008 and 25% in 2009, regardless of whether GDP or population weights are applied.

If their numbers are correct, the Chinese housing bubble isn’t as bad as the American housing bubble of the aughts. What’s more, it’s not fueled by borrowing as strongly as ours was. And what’s even more, Chinese borrowing has largely been to buy actual property, not to finance home equity loans.

All of these things together suggest that China’s property bubble might not be that bad. On the other hand, it’s pretty bad in certain areas, and if the Chinese economy starts to go south it could touch off a vicious cycle of slowing domestic demand and plummeting house prices. It’s still something to keep an eye on.

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Corrupt leaders the world over can (and will) try to shut down the truth, but when the truth has millions of people on its side, you can't keep it down for good. And there's no more powerful or urgent argument for your support of Mother Jones' journalism right now than that. We need to raise about $450,000 to hit our online fundraising budget in these next few months, so please read more from Monika and pitch in if you can.

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