Feature

The coming Chinese housing bust

China's “debt-fueled real estate boom,” built on cheap land, capital, and labor, is at the heart of its economic miracle, said Ken Miller at Time.

Ken MillerTime

Can China “find its way out of the biggest housing bubble ever created”? asked Ken Miller. It’s a big worry. The country’s “debt-fueled real estate boom,” built on cheap land, capital, and labor, is at the heart of its economic miracle. Real estate prices have tripled in five years. But now the government is trying to steer the Chinese economy away from its “export-and-building-boom model” and toward one that relies more on domestic consumption. If that shift leads to a drop in real estate values, China’s economy—not to mention those in Europe and the U.S.—will be hit hard.

For now, the bubble keeps growing as Chinese business elites make money building empty cities and local governments indulge their addiction to profits from land sales. But if that bubble pops and Chinese land prices plummet, we’ll see less demand for raw materials, a decline in U.S.-China trade, and a further retreat from hiring by already skittish U.S. companies. So there’s no room here for schadenfreude. We have to recognize that it’s in our interest to keep China “economically stable and growing.”

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