|THE GHOST MALL|
The New South China Mall, the largest mall in the world based on gross leasable area, has
been 95 per cent vacant since its opening in 2005.
The Chinese real estate bubble has just burst . . . the question is will China go into their own Great Depression and how will it impact the world?
In a bid to insulate China's economy from the global financial crisis and weakened demand for China's exports, authorities encouraged banks to lend, particularly for real estate development and public works that create a lot of local jobs. Fixed asset investment — the construction of infrastructure and buildings — doubled between 2007 and 2010 as developers availed themselves of cheap financing.
The result: Some Chinese cities are awash in vacant commercial space and unsold apartment units. In the first half of this year, home sales dropped:
- 20% in Beijing
- 26% in the western boomtown of Chongqing
- 61% in the speculative hotbed of Haikou on Hainan island
|The official numbers from Shanghai mentioned is of 6 million |
square meters of unsold space this last year.
Local government debt has also skyrocketed. The careers of many Chinese local officials depend on creating jobs and economic growth, but the central government prohibits cities from issuing their own bonds to finance public works. To sidestep that prohibition, municipalities across the country have created off-the-books entities to do the borrowing. A national audit released in June found that local governments had amassed $1.65 trillion in loans by the end of last year — a sum equal to nearly a third of China's GDP.
"China has developed a huge debt burden in the past two years due to the fiscal stimulus in the wake of the global financial crisis, on top of a post-crisis property bubble," wrote Vincent Chan, an analyst for Credit Suisse, in a report released last month.
For more on this story