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Is China’s Middle Class About to be Wiped Out?

Posted By Daniel Greenfield On October 6, 2012 @ 10:43 am In The Point | 6 Comments

The US and China have both hit the magic 13 percent number of real estate investment as a percentage of GDP. In China that means a real estate bubble where people are buying multiple houses as investments.

Guo gestured to the wall behind his couch. His neighbor? He owns six apartments in this compound alone. Guo’s friends, too, all own at least two homes each.

“There is definitely a bubble,” said Guo, whose homes have tripled in value in roughly a decade.

As home prices have skyrocketed, many Chinese households have gone all in on real estate by pouring years of savings into buying as many homes as they can.

Now houses are nice, but home sales in China are fed by the economy where people have to be within sight of the middle class to climb on board. China’s growth is slowing down meanwhile, it’s down to a projected 7.7 percent, down from 9.1 percent last year and 10.4 percent the year before that.

Without that pipeline all those home flippers are in big trouble and a sizable percentage of China’s wealth is tied up in that real estate bubble?

Urban housing stock made up 41 percent of Chinese household wealth in 2011, compared with 26 percent in the United States

When the bubble begins to burst, suddenly the ghost towns are everywhere and all those homes are underwater. And that can wipe out China’s new middle class.

China’s economy has been built on the pitiless displacement of the old farming system for the new urban centers. And like everything else in China and the Third World in general, it’s all built on social capital. Dissolve the forward moment that allows families to invest in their children to move them forward, and it stops looking like China’s century.

The Communist leadership exempted themselves from popular revolt not just with tanks, but by giving the middle class a chance that they did not have in most Communist countries. When that chance is taken away, China’s long delayed revolution may return.


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