The central bank of China just effectively fined state banks $3 billion by forcing them to purchase packages of the central bank’s bills. Commercial Bank of China, China Construction Bank and the Agricultural Bank of China were among those compelled to make the purchases[1]. Analysts say that the move was punishment for lending “too much money in August” and a way for the government to “sop up extra cash in the economy.” Other sources are saying the move is a warning to banks that they need to conform to monetary tightening measures. Analysts blame banks like the ones “punished” recently for China’s real estate bubble because these banks and other private Chinese lenders make decisions on loans within days and cost about a fifth as much as the government banks[2]. A move toward more speculative lending is only fueling the fire.
Do you think that China can regulate itself out of its real estate bubble?
Thank you for reading the Bryan Ellis Real Estate Letter!
Your comments and questions are welcomed below.
[1] http://www.businessinsider.com/china-just-handed-out-a-punishment-to-its-state-banks-for-over-lending-2011-9
[2] http://blogs.ft.com/beyond-brics/2011/09/12/guest-post-chinas-private-banks-are-fueling-speculative-bubbles/#axzz1XpUcqcxs
I’d think the money being pumped into real estate isn’t money borrowed from the banks. Banks don’t lend to individuals. The common taxpaying citizen is too risky. Banks lend to enterprises and corporations with close links to governments. After all these companies are big and have guaranteed business from the government, so it’s not difficult for them to pay it back. That is hardly enough to cause a real estate bubble. The majority of the money causing the real estate bubble is from upper-class rich folks with nothing to invest in with the economy it’s been.