A report on BBC’s Radio 4 Today programme said that falls in prices in China’s housing market are threatening the whole economy.
The Chinese, said BBC’s Beijing correspondent, said that people put their money into property while the government has put up interest rates on loans.
“The bubble is bursting,” said Hu Jin Hui, who runs a big estate agency business in China.
The fall in the property market will have an effect on the overall economy because it accounts for a quarter of China’s GDP, according to the BBC. And banks use property as collateral for loans they make.
If property prices continue to drop, they will find bad loans on their books.
There’s faith in the Chinese government to fix the problem but an excess of confidence isn’t great. Chinese banks are “largely insolvent”, said an analyst at Societe Generale. Central government will probably bail them out, said Dylan Grice.
But policy makers in government won’t necessarily get what they want. “The lights don’t come back on straight away,” said Grice. He expects a year or two of “pain”.
Ten percent of the Chinese economy has been tied up in property. That is enough to get other countries like Ireland and Spain into trouble, he added.
Meanwhile, an earlier report on the Today programme said that UK house prices will fall in 2012.