Can China Have a Real Estate Bubble if There's No Pop?

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The debate surrounding a real estate bubble in China is taking an interesting turn. While few doubt that asset prices have rose tremendously at an unsustainable rate, the question has become a little more theoretical than practical. If a bubble pops, but nobody hears it, does it still make a noise? This question becomes important as the Chinese government reportedly takes aggressive measure to try to cushion the market's fall and avoid economic fallout. Chinese economist Andy Xie writes in a Bloomberg op-ed:

I thought the current bubble, fueled by rapid monetary expansion and expectations of a stronger yuan since the beginning of 2007, would go the same way. Recent developments have changed my mind. This bubble may not end suddenly, but with a slow leak. Previously, I thought the government would relax its credit-tightening policies in the fourth quarter, leading to another surge in property prices. The bubble would pop with a big bang in the second half of 2011 or in 2012.

The government isn't relaxing the credit restrictions on second and third mortgages. As most potential buyers fall into the restricted categories and depend on credit -- not everyone has sacks of cash -- the market can't go up another level to release all the animal spirits.

Read the full story at Bloomberg.

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
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