The global consequences of the China bubble are dire.
According to the Financial Times, an advisor to the Chinese central bank Li Daokui is warning that problems in China's housing market are more severe than those in the US before the financial crisis. That's because in the US, it was a bubble. But in China, it's a bubble combined with the risk of social unrest. "The housing market problem in China is much more fundamental, much bigger than the housing market problem in the US and UK before your financial crisis," he told the FT. "It is more than [just] a bubble problem."
This suggests that any implosion in China would make the US housing crash, which helped trigger the global financial crisis, look like a picnic.
Meanwhile, the Chinese government is taking a very big pin to the property bubble with reports that China plans to introduce a property tax.
No one knows yet how big the tax will be. But there are signs that controls are already starting to be felt with property prices in Beijing, Shanghai and Shenzhen falling 70% and the Chinese government stopping pre-sales by developers, curbing loans for third-home purchases, raising minimum mortgage rates and tightening down-payment requirements for second-home purchases.
The Shanghai index has already fallen on the news. That combined with reports of Chinese manufacturing production being pared back has already had an impact on Asian markets and it's likely to spread.
Investors and governments are learning that holding the Chinese tiger by the tail is a dangerous game.
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