The Chinese government are hopeful they will inspire the next Jack Ma, but at what cost?
Experts warn of a potential “extremely large” property bubble in China. Image credit: Asgeir Kolberg (Flickr)
Amid a quest to make way to the next Alibaba, China’s property market could be placing itself in a credit-fuelled property bubble.
The Chinese government has been aggressively funding the establishment of innovation centres to incubate the next big success story in start-ups. However, a majority of these incubators only have occupancy rates of 40 percent and below, according to internet research firm iiMedia, as told to Reuters.
Some experts believe the surfeit of these start-up spaces may be indicative of an “extremely large” risk of a property bubble.
There will be almost 5,000 innovation centres in the country within five years, iiMedia projected. However, many are situated in small Chinese cities, with not enough talent, suppliers, and amenities to justify their creation.
Overall, home prices have risen in tier-one cities around the country, despite an overall economic slump. In the city of Shenzhen, prices have risen 46 percent since the start of 2015.
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Shenzhen is one of five cities, the others being Beijing, Guangzhou, Shanghai and Zhuhai, that are most attractive for Chinese start-ups, Reuters reported.
Nearly 80 percent of the funding for the innovation centres comes from the government or state-owned universities.
To keep the economy from completely derailing in the short term, China’s central bank has drastically eased credit policy, making access to mortgages wider than ever. In 2014, the central bank’s interest rate was cut to its lowest level yet.
In May, Chinese banks issued CNY985.5 billion (USD149 billion) in yuan loans, an increase of CNY84.7 billion (USD12.6 billion) from a year earlier. This increase was led by a surge in mortgages, with long-term loans standing at CNY528.1 billion (USD78.8 billion).
Meanwhile, China’s repayment burden is mounting to a third of its gross domestic product (GDP). The debt-to-GDP ratio in the country now stands at almost 260 percent.
Billionaire investor George Soros has opined that China’s debt-ridden economy resembles that of the US at the advent of the 2007-2008 financial crisis.
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Source : property-report.com
Read more…Has China put itself at risk of a real estate bubble?
