All opinions expressed in this article are solely the opinions of the contributors.
The Chinese housing crisis has attracted coverage and criticism from observers around the world, raising concerns about its potential to destabilize China’s entire economy. The U.S. experienced its own financial crisis in 2008, the country’s worst economic disaster since the Great Depression.
Straight Arrow News contributor Larry Lindsey reviews the history of modern financial crises in America and concludes China should learn from them. There are good ways out of the Chinese housing crisis, Lindsey argues, but whether Xi Jinping will choose any of them is a different question.
Well, financial orthodoxy doesn’t just exist in America, it applies everywhere. And right now, it’s China, an unusual place, for sure, to have financial orthodoxy, but it’s creating a similar problem, although somewhat different.
You see in China, if you want to buy a new house, i.e. a new apartment somewhere, you have to pay all your money down before it’s built. Why? Because there was so much demand that builders could command that. So homeowners had to go out, pool all their life savings for the down payment, and then take out a mortgage for the rest on a house that didn’t even exist.
Well, guess what? A lot of those builders during COVID ended up not being able to complete the buildings that they had already sold. So people out there were stranded. Their life savings was gone for the down payment, and they were saddled with a mortgage, but didn’t have a house to show for it. This created a big hit to consumer demand in China, particularly among the growing middle class.
