A pre-Olympic building boom has left Beijing has millions of square feet of expensive office space no one wants to lease, fancy stadiums no on wants to play in, and masses of high-end homes and apartments that no one can afford. The iconic Bird's Nest stadium is slated to become a mall.
Real estate prices are tumbling. Banks, however, have yet to begin writing down the loans.
From the Los Angeles Times:
The Beijing Municipal Bureau of Statistics reported this month that housing sales in the city dropped 40% last year. Chinese economists have predicted that housing prices will drop 15% to 20% in Beijing this year. Shanghai has experienced a similar decline.That ripple will almost certainly cross the Pacific and hit American banks that have come to rely on the Chinese for infusions of new capital.
"You can look at this perhaps as a healthy correction in the market," [Louis Kuijs, a senior economist at the World Bank in Beijing, said].
In the longer term, he said, "China's urbanization and overall development is going to lead to a very large additional demand for housing in the city."
Before that happens, the situation could get worse. Most of the real estate has been financed by Chinese banks, which have avoided writing down the loans. Eventually, they will be forced to, and that probably will have a ripple effect throughout the economy.