http://www.ft.com/cms/s/0/563ddf18-a187-11e0-baa8-00144feabdc0.html#axzz1QXf0MVOW
Many of Huarong’s borrowers are second-tier property developers who can’t get credit at home as China tries to slow a rise in property prices which threaten social stability. Usually, these borrowers are able to get the money back across the border into China.
But lack of credit is not yet the problem. Credit is still flowing in China, though at a slower pace and with a higher cost, thanks to non-banks in Hong Kong such as Huarong. Bank credit in Hong Kong stands at 240 per cent of gross domestic product, according to data from JPMorgan, mostly reflecting the arrival of Chinese borrowers circumventing restrictions at home. In mainland China itself the figure is 120 per cent.
The current problem is just how much money is going to the high end property market, precisely because China depends so heavily on the property market for its economic growth – and how little is going to more productive small and medium enterprises.
Today, all the choices involve difficult trade-offs: Local governments need revenue from land sales since that is their main source of income and have a vested interest in keeping prices high. The interest on bank deposits is still negative, leading investors to put their money into property because they don’t trust the stock market and there isn’t much else in which they can invest, as long as capital controls remain in place.
There is a need for more housing. But it wont be met by the luxury flats that can now be seen in third and fourth tier cities where there isn’t the sort of rising income that could support that kind of high-end market.
Today, it is hard to know what the cost of all this actually will actually be.
Many of Huarong’s borrowers are second-tier property developers who can’t get credit at home as China tries to slow a rise in property prices which threaten social stability. Usually, these borrowers are able to get the money back across the border into China.
But lack of credit is not yet the problem. Credit is still flowing in China, though at a slower pace and with a higher cost, thanks to non-banks in Hong Kong such as Huarong. Bank credit in Hong Kong stands at 240 per cent of gross domestic product, according to data from JPMorgan, mostly reflecting the arrival of Chinese borrowers circumventing restrictions at home. In mainland China itself the figure is 120 per cent.
The current problem is just how much money is going to the high end property market, precisely because China depends so heavily on the property market for its economic growth – and how little is going to more productive small and medium enterprises.
Today, all the choices involve difficult trade-offs: Local governments need revenue from land sales since that is their main source of income and have a vested interest in keeping prices high. The interest on bank deposits is still negative, leading investors to put their money into property because they don’t trust the stock market and there isn’t much else in which they can invest, as long as capital controls remain in place.
There is a need for more housing. But it wont be met by the luxury flats that can now be seen in third and fourth tier cities where there isn’t the sort of rising income that could support that kind of high-end market.
Today, it is hard to know what the cost of all this actually will actually be.
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