Ask Prof Wolff: China’s Housing Market & GDP 

Prof Wolff, you might be forgetting to add that the developers who over leveraged are now being punished because of the new debt servicing ratio that the central government has implemented. In other words, this so called “crisis” is completely manufactured by the government to root out the extreme speculators. Housing is to live in, not speculation - according to the CPC. Seems reasonable to me

Since coming into power in 1949, the Chinese Communist Party has been on trials and errors on many national policies. They have grown from a totally inexperienced country pumpkin into the world second largest economy. Along the way many serious mistakes were made resulting in millions of lives lost and billions of $ went into the drain. One thing the Communist Party has learned is never go to war unless it’s absolutely necessary. So in 1951-53 they fought the US in the Korean War; in 1962-63 they fought with India in the border war and in 1979 they fought with Vietnam forcing Vietnam to withdraw from its incursions into Cambodia and Laos. China had had fought numerous civil wars since 2000 BC till 1949. They are damn damn good at war. But they do know wars bring misery to people and nation. On the other hand, a young nation called America had had fought hundreds of wars since its independence in 1776. Americans don’t know much about war, just simply thinking that incessantly bombing will bring victory. Hence they lost in Korea, Vietnam and recently, Afghanistan. Now US is enticing China to attack Taiwan which has been China’s territory since time immemorial. US is foolishly thinking that by pre supplying vast amounts of weapons to Taiwan who will then be able to withstand the PLA and better still, greatly reducing PLA strength. This is just wishful thinking simply because very few Taiwanese are prepared or dared to fight the PLA; US is being gravely misled by a few corrupted DPP party officials. How wonderful would this world be if US can change its antagonistic stance against China and cooperate friendly together. But until and unless a wise and prudent politician is born in US, the aforesaid is just my wishful thinking.

I always enjoy listening to the differences between The US & China economy. Especially since China has pulled a large number of people out of Poverty, while The US complains we're not giving Billionaires enough money. 🙄

Thank you, Prof Wolff, for shedding light on this issue

Here is someone able to explain economics by facts, figures and data. He is a rarity in America at the height of the bashing China policy.

Thank you professor Wolff for your profound professional programme, its beneficial, educational and informative , keep going .

Great analysis of the situation

One needs not to be too nice about Chinese housing policy and situation here. As a local mainlander i'm 100% sure that Prof. Wolff is only focusing on analysis of the macroeconomics while ignoring the basics that the Chinese government has OWNED all the lands since the Land Reform. The loaning and building have proven to be an astonishingly efficient way to earn the "extra taxes" from petite bourgeois in the city; however, as the housing market has become a speculative commodity for urban economics it has been quickly financialized and entered the "real-estate bubble" since the 90s. Combining with a drastic decline of government owned business which provides basic social cares and housing distribution welfares / a skyrocketing rise of urban private business which mostly disregard the Labor Law brazenly, the diverging petite bourgeois population and rural emigrant workers -- which consist of more than 97% of the urban population -- have been maelstromed into a deteriorating economic status as renters who are drained by high house rent / health care / education cost in the urban area. Meanwhile, the government has yet to show any strong intention of limiting the real estate speculation of the urban housing market and bourgeois by executing property tax (though some tier 1 cities has been reported to test some new policies last year), this inclination away from the working class is very disappointing The birth rate of China has been superhero-landed in the past decade and is now negative according to this year's latest census, as a 26yr male urban citizen who is in his "birth age", i'm pretty sure my peers would all agree on that "housing, education and health" is our new "three mountains on the shoulders of the proletariat" in our time. If our government is still possessed of play the macroeconomic big games while ignoring these factors, I do not know if there are any chances that we could avoid the economic crash after this real estate bubble blow up like what happened in Japan 1990s

Love you Professor Wolf. May I please offer one correction? There is no "Chinese Communist Party" also referred to as CCP. It is the "Communist Party of China" or CPC. The renaming of non-western organizations or countries by western countries is a bad habit. Cheers!

❤️🌞👍🥇 Well explained, thanks Mr. Wolff, you are expanding our sphere of knowledge something that is needed in these days when the dark forces of the unipolar world order are trying to manipulate our ability to think.

Municipalities in China derive their funding from development. They need to build housing to keep their own lights on. This is not much different in effect than US municipalities addicted to housing development to paper over financially unviable suburbia.

Oh, Professor Wolff, you are trying to rationalize why the capitalist sector of China's economy is out of whack just as it is in the United States. It's my idea that if capitalist speculation were removed from the equation then the harm to purchasers would not be so painful. It's speculation that's the problem. That is, allowing speculators to PROFIT on a personal basis from one of the absolute necessities of life has thrown one of China's biggest needs into chaos. The reason I support a socialist philosophy of economics is because I believe that every person deserves to live and even thrive. If it isn't the purpose of government to provide for the existence, necessities and societal rules which make life bearable for their citizens, then what exactly is government for? In big groups keeping order and the allocation of the most basic necessities are obvious governmental functions. There can certainly be limits on the degree of governmental control and there must also be minimal standards below which no person's access to necessities can fall. Living in huts is unacceptable, much less. Iving on city streets in tents, if you are lucky, as happens in all capitalist countries is not accrptable. Housing without plumbing and ventilation, cooking facilities and reasonable construction guidelines is basic and nobody should be so poor that their dwelling falls below stated standards. Marx says all this. "From each according to his ability etc..." We all know that famous quote even if we aren't very well versed in Marxism. The best way to provide a minimum level of security, education, housing, nutrition, etc. Is for the government to take on some of the biggest jobs. We don't want the government micromanaging our lives. Where we live, what interests we have, how many children we choose to have, whom we talk to and about what, etc. are personal rights and we don't want government to control those things. But providing big public utilities is best done by the government rather than by for profit individuals or a capitalist consortium. The balance between what is cooperatively owned and run for cooperative benefit and what basic necessities are needed by everyone at the most reasonable price is where socialism is a better system. China has let private profit creep into its socialist system and is now suffering the results of capitalist speculation for private profit. The sector that is being stressed by capitalist speculation is one of the most basic necessities. People are purchasing private residences from private developers. It all got wobbly and now the banks, the developers and the purchasers are all suffering setbacks and big losses which could have been avoided if government guaranteed and provided the housing, the building standards, the financing and the right to occupy the dwelling and all were publicly and therefore cooperatively owned. If the financing is government financing, the developers were a cooperative operating under government direction but cooperative organizations, the buildings themselves were cooperatively run and occupied I think the system would be more stable and less speculative. Now, Professor, what is wrong with my idea? I welcome some input. Isn't your idea that the system is more stable under socialism than capitalism the basis of your books? Don't you say that capitalism is not stable? Doesn't the capitalist world suffer bubbles and recessions and inflation all because of greed and speculation? So, why is all that true in the U.S.A. but not in China? Why do you think that in China's mixed economy that private ownership and accumulation of personal wealth doesn't destabiilze the economy and cause it to wobble? I'm trying to understand!

Word is they are tearing down housing because no one is buying the housing or living in the apartments

When you take care of your people first and foremost, the people will prosper, therefore, your nation will prosper, When you impoverish your people, the people will not prosper, therefore your nation will not prosper... Common sense...

good professor.. what a laugh.. 1% growth rate in Europe.. no.. its utter collapse and mayhem..

The Chinese housing market only started in the year 2000 after the Housing Reform to step up its development program towards a market economy, large scale private homes constructions began in Beijing. Before that most every one worked at State Owned institutions which owned the apartments, rent and utilities were collected from their salaries. There were few big private companies at that time except foreign investments; it was before Alibaba, Huawei was in the stage of nurturing. Employee could pay a lump sum to "buy" their homes when they reach retirement age, typically at age 58 for men and 55 for women. But they do not owned the homes as freehold estates, the government has primary ownership of the land. When people buy homes in China they get 70 years or 99 years leasehold, as called in the US. The definition of US freehold estate is that the homeowner owns their land from the center of the Earth to the air space above it. Well, there are no individual oilmen in China who can dig from their yards or receive C-band satellite sports games from the air space. During the first 10 years or so there were lots of speculators who struck riches, home prices soared 5 to 10 folds while the RMB also appreciated 20% against the dollar. By 2012 there were a rush of overseas speculators buying up homes in Canada, Australia and the US. Vancouver and Toronto, Sydney and Melbourne, Los Angeles and New York are popular destinations among Asians. By 2017 it was said that 120,000 Chinese moved to Vancouver as Canada promoted investment immigration. Someone made a soap opera and movie about them called Crazy Rich Chinese. Home prices in those cities also went up a couple hundred percent for a few years before coming back down, less so for US cities due to the size of the market. For most cities in China, new and old, the housing boom ended around 2017-2019, no more easy profit. Unlike the US in the past where home prices went up and down following the cycle of interest rates, China is having its first ever decline in the housing market. For almost two decades people believed home prices would always go up. Now it is stagnant and dropping somewhat, which is anything but abnormal. Over the years China has taken various measures to curb speculation such as homeowners could buy only one home and foreigners and people from another city or province were not allowed to buy unless they work or study in that city, something like that. By doing so the government was able to make plans for city developments according to potential; some cities have oil and metals, some have fisheries, and some have factories and agriculture millions or actually hundreds of million have moved from coal burning mud walled homes to modern apartments with all Made in China appliances. Different segments have huge differences in home prices. Beijing homes are 10 times the prices of remote provinces of western China. But on a whole they all are thriving in economic growths so no complaints but cheers for the government. Also there is no mortgage companies in China, no Fannie Mae and Freddie Mac, people borrow from State Owned Banks so there are no incentives from bankers to rip them off for profits. There are hardly evictions in China and homeless people sleeping on the streets is almost non-existent. Family relationship are tighter in China that young people would received gifts from parents regarding buying a home, and parents would usually move in to live with their children when they get very old. Together they seldom have financial problems regarding shelter.

It is always a pleasure to listen to Professor Wolf talk. Factual, unbiased, sincerity, no propaganda news and professional comments and highlights. Very educational.

Professor, of all your comments, this one would have definitely benefitted from double the time so you could talk about it in detail and anticipate some retorts. Such as: Chinese culture of house ownership; the relationship between developers and local governments; the specifics of government intervention in insolvent developers; rural exodus containment policies and how they've affected projected housing demand in cities in the last 10 years. And so on. This is a really complex topic that deserves to be commented on at length.

U r great always. Fakes narrative must be stopped from the sources.

👍👍👍

Good analysis, as always, thank you professor.

👍👍👍👍💖💖💖💖❗

One point not mentioned is some Chinese developers raised funds overseas, and the foreign lenders are some of those who jump up & down rgd the situation? But for the Chinese ppl & the Chinese Govt, the real estate developments (tangible assets) are located on-shore so they don't jump so much? Prof Wolff is apt to highlight that the media's reporting is not so balanced? 🤪🤪

When the matter at hand is China i can always say: "the cope is strong with this one..." i wonder if he knows there are others anaysing the chinese housing market? Not once did i heat the words bubble or static management🤣! Search China Ordos amd then we'll discuss growth tragectories...

Ask Prof Wolff: How do you analyze the change in the Patagonia Corporation? All profits are designated to go to the planet, etc.; this is not the same as worker controlled/decision making enterprises.

Housing market in China won't crash to the extent that would cause a revolution. There are millions of people in China who cannot afford to buy a home at their current inflated prices, but who will be able to afford it if prices fall. Given that Chinese culture requires a groom to buy a home before marriage, this pent-up demand is guaranteed. China will not see a 2008 American-style housing bubble anytime soon.

Food.. Shelter.. Basic Needs... For... All... Foresight into.. Future Needs... Very.. Unique..

@ 3:00 Countries in the ASEAN have this practice as well. Buyers are invited to view plans/showroom of the project. After choosing a unit, they have to put down an initial deposit. The construction of the project has not even started but will be completed in a year or two. I do not know why China is criticised for this practice of advancement payment for a property yet to be built. Why the West does not criticise the same practice in ASEAN, and probably in other countries as well.

What about the mortgage payback boycott by borrowers who have been paying for units that are still under construction? My understanding is that the developers are not able to complete the units because they are financially over extended.

An honest discussion and debate cannot start with figures which come from the CCP. Eg you say that the reported figure of inflation is 2%. I like you do not have access to the real figures. However as someone who lives in China, I would say it is much greater. Wollf, you have complete skepticism of your own government but naïve belief in the Chinese government. Extremely puzzling.

Another perspective to the Chinese government's bursting of the housing bubble (along with private education and expensive healthcare) is that it actually frees the factors of production for China in the long-run. There is a research which indicates that China's and US's total market capitalization of real estate and equities are about 300% of GDP for each country. For the US, it is about 150% each, but for China it is 230%/70%, with housing taking the bulk of the share. Put another way, cheap housing/rent will actually be beneficial to China as labour and entrepreneurs will be able to take a larger share of the pie, hence creating a much more competitive economy.

I rode high-speed trains in China in 2013. and I saw many clusters of high-rise buildings being constructed, seemingly in the middle of nowhere. Usually, the clusters totaled 12 buildings, sometimes up to 20, all going up simultaneously. I had previously read in the South China Morning Post (Hong Kong) that the Chinese government planned to move 200,000,000 people from rural to urban environments, so that China could bulk up its domestic economy. Did this ever pan out? Did these high-rise clusters become ghost cities?

China Xi had been warning all these Property Bubble Creators and Speculators and they didn't or wouldn't believe that the Central Government would pull the rug under them so that property ownship will become affordable for everyone rather than for selected few. For an example, I know of a Chinese Student Studying in Melbourne whose family has 10 apartments in Beijing and the monthly rental enable them no need to work and afforded the young lad to enjoy a study life in Melbourne.😄😄

Ah another expert professor! There are many of them in the USA it seems.

Extremely high growth rate eats up the future potential, which was particularly true in President Hu's term.

A serious amount of beating around the bush ! Didn't address the issues with the amount of unfinished cities . And people wanting to have their units finished or they don't want to continue paying for them. The companies in trouble for it ??

In China the local government collect revenues by selling lands to developers, unlike the US which collects the property tax. So in order to keep collecting the revenues, the local government needs to keep selling the land. The ratio of housing built per person is at 2 already, that I read somewhere, so China needs a housing reform that adapting the property tax system. But the government is hesitating the reform in fear of inducing the collapse of housing market. It’s a dilemma. This is my understanding, I could be wrong.

The true narrative which msm would not want you to listen n know

I mean, they're still living somewhere already, the population growth has stopped, so whether there's a glut is a valid question. Also, the turmoil in China about housing was in part because the developers were not actually building the units in which citizens had already partially paid for flats - so they started organising mass stopping of further payments. So on the one hand, there's the question of whether the housing isn't pointless, built just because the Chinese have a habit of using real estate as a storage of wealth due to a lack of different trusted avenues with sufficient return. On the other hand, the developers have hit financial trouble and aren't even fully capable of fulfilling the obligations of building those potentially superfluous buildings.

I think saying that the Chinese are building housing ahead of schedule, which very well might be true, is that it obscures the fact that houses are used as speculation while local communist officials get rich selling land. There's much to be learned from China's success but we shouldn't overlook what a corrupt country it has become. China should not be the model of our aspirations. Mondragon shows us a much better vision of a socialist future. A position with which Mr. Wolfe I believe would agree.

Many problems inherent to capitalism - *I sleep* Few problems peripheral to socialism - *REAL $HIT*

Chinese housing is the only means of investment for the Chinese people. Chinese buyers receive mortgages to reserve a property. They pay on that mortgage even before the property is habitable. The builders use the pre-paid mortgage money to fund the building project. PONZI SCHEME. Recently, builders have been falling behind on their constructions due to the zero covid policy and halted supply chains. The buyers continue to pay for these constructions even though they are not actively being completed. Then, a different contractor is granted a permit to build right BESIDE the unfinished first project and sell essentially identical units for a lower price. Chinese citizens have revolted about this and STOPPED paying their mortgages. Families have invested their entire collective life savings on these purchases and been bankrupted as a result. The Chinese housing market is a total mess. Plus, the quality of the building materials is sub-par. Even if construction of these properties is eventually completed, chances are, they will be crumbling within the next 5 years. Repurposing of unbought housing units is not possible if the buildings are falling apart.

Even Socialists are not above product placement (referring to Prof. Wolff's book strategically placed behind him).

Prof Wolff ends this video with "If the main stream media approach is very very one sided which it is, then help us open up the space, bring in different perspectives so that an honest discussion and debate can take place. We need you to partner with us" D@W can't handle different perspectives so that honest discussions and debate can take place. D@W practices cancel culture and puts blocks on some of us who offer legitimate differing opinions. D@W doesn't like it when some of us call him out with facts. D@W has only one focus, anti-capitalism. Wolff ends this video with a warm fuzzy feeling but in all honesty, doesn't want to hear alternative debate.

Should they not be outgrowing the West? Are they not 3/4 of the world's population? Wouldn't that just be "right sizing" their economy?

There are several issues for China to contend with, the housing prices are declining, the incessant covid lockdowns are destroying domestic demand and there is a demographic decline on the horizon. News reports indicate that even though inflation is low, it still exceeds growth in income? These appear to be very serious issues, I would like to see a more detailed discussion including what the Chinese can do to ameliorate these problems. This is all in addition to tactics by US and europeans to block China's growth by blocking exports of key items they need.

THIS JUST IN: ( not really, but for some people, like Wolff who are out of touch. ) The Belt and Road ( which was One Belt One Road ) differ from the U.S. I.M.F. strategy of 1% loans payable in 30 years to 7% loans payable in 15 years. ( i guess they're in a hurry ) The price of default is the loss of "natural resources" ( wow what a unique approach to empire ) meanwhile, in China, the real estate market which is 30% of their economy and where 70% of the wealth of its citizens is invested, is crashing, banks are refusing withdrawals, deterred by tanks in the streets, their high-speed rail network is failing and routes are shutting down as they are unaffordable, a serious drought has crippled both the energy grid and disrupted river transport as the Yangtse River has dried up, and factories are shut down as a result, so wages are NOT rising as they are no longer being paid. Then we have the "housing market" specifically... China’s property market is struggling. Country Garden Holdings, ranked for years as China’s top real estate developer by contracted sales, reported a 96 percent drop in first-half profits, the Wall Street Journal reported. And the company’s home sales are down by one third versus the previous year. Anemic demand, lowered expectations and declining property values, have contributed to the struggling market, the Guangdong-based company told the outlet. “All these exert mounting pressure on all participants in the property market, which has slid rapidly into severe depression.” A resurgence of Covid-19 in cities across China has also slowed construction on projects due to strict lockdowns. Country Garden, which is considered one of the country’s financially strongest developers, tallied a profit of $89 million during the first six months of 2022. That’s down considerably from the $2.2 billion it raked in during the same time period in 2021. More than 30 Chinese real estate companies, including China Evergrande Group and Sunac China Holdings, have defaulted on their international debts and privately run developers have issued profit warnings. The depressed property market is also impacting other Chinese sectors like the privately run banks and state-owned asset managers. Debt managers China Cinda Asset Management and China Huarong Asset Management, reported losses during the first half of the year. Cinda reported a 33 percent dip in profits and Huarong reported a $2.7 billion net loss. Country Garden chairman Mo Bin apologized to investors for the sharp profit drop during an earnings call and said the company would continue to adjust its strategies to focus on balancing its cash flow. The company also suggested that despite a depression, it believes China’s economy is resilient and urbanization in the country has positioned it for long-term growth.

"all that money, charging after goods...bidding up their price.".... Ok. Now this is a contradiction to Wolff's contention that EMPLOYERS cause inflation. He's said over and over that it's employers.,.. since they set prices...and it's just greed essentially. Just like he says unemployment is the fault of employers since they do the hiring and firing which is about as facile as an economist can get.. kindergarten level facile... It's as if there's two Richard Wolffs and they don;t seem to agree... like him saying Libertarians are hustlers for saying gov. policy (monetary and fiscal ) causes inflation...but he's saying it himself right here...

A little REAL economic history... Financial Stability and the Fed Alexander W. Salter - September 16, 2022 Reading Time: 3 minutes The primary responsibility of the Federal Reserve is to conduct monetary policy. It manages the supply of dollars in the economy and, in doing so, determines the purchasing power of the dollar. But that was not always the case. When the Fed was created, the U.S. was on the gold standard. The dollar was defined as 0.04837 troy oz of gold ($20.67 per troy oz). Monetary policy was unnecessary; the gold standard determined the supply of dollars and, hence, the dollar’s purchasing power. The Fed was not created to conduct monetary policy. It was created to promote financial stability, to ensure that private banks could redeem their claims to dollars (i.e., gold) by providing emergency liquidity when necessary. The architects of the Federal Reserve Act explicitly denied they had created a central bank. They described the Fed as a publicly-supported super-clearinghouse. In a healthy banking system, people treat dollars and claims to dollars, including redeemable banknotes and checkable deposit balances, as near-perfect substitutes. The connection is so tight that people rarely distinguish between the two. I might say I have $1,000 in my checking account rather than a claim to $1,000 (which is what I really have) because I fully expect the bank will honor its obligation at par when I am ready to withdraw or transfer the funds. No one would think it strange that I treat my claim to dollars as if it were actual dollars. Indeed, they would probably think it strange if I insisted too strongly on the difference! Of course, claims to dollars are only treated as near-perfect substitutes for dollars if the issuer of those claims, namely banks, are trustworthy. The public must believe a bank’s assets (especially capital) are sufficient to back its liabilities. But what if issuers aren’t trustworthy? Then a claim to a dollar isn’t as good as a dollar itself. When this link breaks, banks’ balance sheets aren’t strong enough to back their liabilities. This is how runs on banks and financial panics start, and it was the primary problem the Federal Reserve was introduced to address. Was the Fed necessary to avoid bank runs and financial panics? It’s true that America’s National Banking System, which prevailed from 1863 to 1914, was unusually panic-prone. But this was due to misguided regulations, not inherent instability. The Fed was a compromise measure, a middle-of-the-road path between the unsatisfactory status quo and a genuine free banking system, as existed in Scotland during the 18th century and Canada up until the early 20th century. The Fed was supposed to stop panics by preventing a run on banks from evolving into a run on the banking system. When the public tries to redeem bank liabilities en masse, banks may become illiquid. They don’t have enough base money on hand to redeem their outstanding claims. But they may still be solvent if total assets exceed total liabilities. As a lender of last resort, the Fed could help solvent-but-illiquid banks to come up with the requisite liquidity to meet obligations. Unfortunately, the Fed was derelict in its duty. Fed leadership never behaved as a responsible lender of last resort. The Fed let too many solvent banks fail during the Great Depression and has helped too many insolvent banks stay afloat ever since. With the suspension of the dollar’s redeemability for gold in 1934 (domestically) and 1971 (internationally), the Fed’s mission was expanded to include control over monetary policy. It has not handled this responsibility very well, either. Inflation has been higher and the future purchasing power of money has been harder to predict under the Fed. In retrospect, creating the Fed was a mistake. Policymakers should have reformed U.S. banking into a free banking system, which was an option at the time. Private banks don’t need a central bank to stave off financial turmoil. They are well aware of the illiquidity-insolvency problem and can take steps to counter it. The most important measure is creating and maintaining a private clearinghouse. Banks naturally acquire each others’ liabilities over the course of business. They develop clearinghouses as a low-cost way to settle their debits and credits. Clearinghouses also perform important functions that promote the health of the banking system. They monitor banks’ balance sheets even during tranquil times, to ensure minimum capital standards. When markets begin to falter, they facilitate emergency loans by banks with excess liquidity to banks that need a temporary boost. In high-stress scenarios, clearinghouses sometimes issue their own liabilities, backed not by the balance sheets of individual banks, but by the banking system as a whole. Clearinghouse liabilities are valuable because of the promise to redeem them when the crisis has passed. In short, clearinghouses perform many last-resort lending functions more effectively than “official” last-resort lenders. Voluntary cooperation by profit-seeking financial intermediaries can deliver economic stability after all. The Fed failed at its initial task of promoting financial stability. It has failed at conducting monetary policy as well. Given the Fed’s major financial-policy and monetary-policy errors since 2008, we should explore major structural changes.