China is not omnipotent and the real estate prices will possibly change - By: lisali

According to an article published by The Wall Street Journal, the real estate market is still in downturn, and this may cause the banking crisis and the default risk of local governments. In the article, it is pointed out that although the government has solid financial guarantee for the bank, but the government is not omnipotent. Although the possibility that prices may gradually depart from the government-controlled prices and may fall sharply is very small, but it does exist.
The government control of the property market speculation has started to lower down the residential real estate prices. Developers will be forced to sell the housing in stock at lower prices, that is to say they have to slash prices to attract buyers. Once the developers begin to cut down prices, the rest of the developers are forced to follow up. The will finally result in write-downs in asset values and the decline of the expected profit in the entire real estate industry.
It is also pointed out in the article that if the real estate industry, one of the main driving forces of domestic economy, begins to collapse, it is the time for the Chinese economy to consider the possibility of a hard landing.
The sharp drop of the investment in the real estate industry will make growth rate of the China's gross domestic product (GDP) more than two percentage points lower. It is anticipated that in 2011, growth rate of China's GDP will be about 9%. However, the sluggish of the Chinese real estate industry will cause a series of problems, such as the growth rate of demand for building materials will be lower, the construction workers begin to suffer from unemployment and the household wealth of the residents will be impacted. The additional influences of all these problems indicate that and so the additional impact means that there is more possibility that China's economy will suffer a full impact than a partly one.
The financial system is also unable to escape being harmed. About 20 percent of China's banking loans is directly connected to the real estate industry, and another 16% has been lent to local governments. 40% of local fiscal revenue comes from land transfer. Falling house prices will result in falling land prices, thus the risk of default of the real estate developers and local governments will increase. With the economic slowing down and asset quality declining, the Chinese government will have to deal with a full-scale crisis.

About the Author

For more information about big bend national parkand park model trailers , you can visit http://www.chinab2bcenter.com £¡

Article Directory Source: http://www.articlerich.com/profile/lisali/203798

Additional Articles From - Home | Finance | Real estate