China's smaller cities are now the scene of a housing glut, which could undermine China's growth. What are the possible consequences? How are developers reacting? Is the government doing anything about it?
Below WSJ reporters Esther Fung and Bob Davis answer those and other questions.
Why are the recent price cuts so bad? Isn't this just the market at work--less demand, ergo lower prices?
The same could have been said for the U.S. in 2007. Falling prices in Las Vegas, Bakersfield, Miami were just the market at work. The problem is that if prices fall too far, they don't invite more people to invest in property. Just the opposite. Would-be buyers keep their wallets closed, fearing that the value of a home will go down in value.
That's particularly a problem in China, where people have thought for 20 years that real estate prices can only go up in value. If that psychology switches, it's a huge problem.
There was concern that the property bubble had burst in 2011. What's different now?
In 2011, the big worry was escalating prices in China's major cities putting apartments out of the reach of all but the rich. The central government implemented property curbs, such as limits on multiple home purchases, to rein in speculation and frothy prices. After two tough years for developers, prices started heading up again smartly last year.
What makes the current problem different is that a) the problem is more widespread, hitting lots of small and medium-sized cities, b) the issue is a glut rather than rising prices, and c) China's finances are tied ever more tightly to real estate.
Since 2008, debt in China has grown at a pace similar to the U.S, Europe, Japan and South Korea before they fell into deep recessions. One big reason for the run-up in debt is lending to real estate developers. If developers can't afford to make payments on their loans because they can't sell enough apartments, China has a big problem.
Speaking of which, how are developers paying their bills?
Many construction companies are getting paid in apartments as developers become more and more cash-strapped, according to Zhou Liping, a property consultant at Jiangsu Lianmeng Property Consultancy. 'It's quite common, ' he said, adding that some of these construction companies then use the apartments as collateral when they take on bank loans.
Are there signs of construction workers losing their jobs?
Certainly it's a danger. Unfortunately, unemployment data is unreliable in China and it isn't counted by occupation. So far, there is no sign of widespread job loss. There are still more jobs than workers seeking jobs, largely as a result of demographic changes that are reducing the size of the Chinese workforce.
What are some signs that the growing glut is having economic ripples?
Copper prices have been falling since 2010, with analysts blaming slack demand in China as one reason. Copper is used in roofs, gutters and building expansion joints. Meanwhile, ArcelorMittal, the world's largest steelmaker, has forecast slower growth in Chinese steel demand this year due to more muted construction demand growth.
Retail sales growth has also slowed recently, due in part to falling growth in sales of appliance s and furniture, both linked tightly to apartment purchases.
What is the government doing about it?
The central government has indicated that it would allow local governments to adopt their own market regulations rather than implement a one-size-fits-all policy.
In some areas, local governments are trying help out. In Fenghua, government officials are trying to stave off a default by a local developer. In Changzhou, the government has been trying to keep discounts to a minimum to prop up the housing market. In Yingkou, the government has reduced fees and taxes for new purchases and made it easy for new buyers to get the residence permits necessary to obtain social welfare benefits, including public education for their children. So far, these measures have had only a limited impact on boosting sales.
Does this mean developers will finally start to cut back on their headlong, hell-for-leather building?
Some of China's largest developers are now trying to focus again on China's biggest cities, where demand is stronger. But why do developers keep building in problem cities despite obvious lack of demand? Why did U.S. developers do the same thing? Developers are optimists and salesmen by nature. Each thinks that its project will thrive even as others don't.
According to Nomura, profits for a group of 142 listed property developers in China rose 581% between 2006 and 2012 and never fell during any of those years. Other non-financial companies saw profits rise 64% during that same period and profits sometimes fell year-to-year for that group.
'China's real estate developers are behaving like internet start-ups,' says Mark Williams, a China economist at the Capital Economics in London. 'They're focusing on grabbing market share in a growing market, but the smaller and medium-sized cities they are in aren't growing rapidly.'
Tim Franco for The Wall Street Journal
以下是《华尔街日报》(The Wall Street Journal)记者方心恩(Esther Fung)和戴维斯(Bob Davis)对相关问题的回答。
据Jiangsu Lianmeng Property Consultancy的地产顾问周丽萍（音）表示，由于开发商的资金日趋紧张，它们将房子冲抵建筑工程款支付给很多建筑公司，这种情况很普遍。周丽萍还称，有些建筑公司再将房子作为抵押品向银行贷款。
凯投宏观(Capital Economics)驻伦敦的中国经济学家威廉斯(Mark Williams)称，中国房地产开发商的做法犹如互联网初创企业；他们专注于在一个持续增长的市场中抢占市场份额，但是他们所处的中小型城市的增长速度并不快。