Chinese property bubble (2005–2011)
The New York Times reported that the bubble started to deflate in 2011,[1] while observing increased complaints that members of the middle class were unable to afford homes in large cities.
Possible contributors include low interest rates and increased bank lending,[6] beginning in 2003 under Wen Jiabao which allowed cheap credit for the construction and purchase of property while making competing debt investments less appealing.
[22] Contributing to the bubble were Chinese companies in the chemical, steel, textile and shoe industries opening real estate divisions, expecting higher returns than in their core businesses.
[24] Analysts, including Cao Jianhai, professor at the Chinese Academy of Social Sciences,[25] Andy Xie, a Shanghai economist,[26] and Zhang Xin, a CEO of Beijing real estate developer SOHO China[13] warned of the threat of a bubble and the economic stagnation that would follow.
In response to fears of a bubble, in the summer of 2011, Standard & Poor's downgraded its outlook for China real estate development sector to negative from stable, following a tightening of credit conditions in the country and slower sales.
The World Bank stated in a November 2009 report that Chinese home prices had not outpaced increases in incomes on a nationwide level, which dispelled worries of a looming bubble.
The Chinese cabinet announced in 2010 it would monitor capital flows to "stop overseas speculative funds from jeopardizing China's property market" and also begin requiring families purchasing a second home to make at least a 40% down-payment.
[2][citation needed] As told in an Al Jazeera documentary called Chinese Dreamland by David Borenstein, China's technocrats planned to avoid the 2007–2008 financial crisis and the Great Recession by creating the greatest housing boom in human history, with then-Premier Wen Jiabao proclaiming that "confidence is more important than gold or capital" to maintain employment and GDP growth.
Since the best way to market countryside housing was "internationalisation" by depicting them as global commerce metropolises, real estate developers enlisted "rent-a-foreigner" companies to stage "dazzling spectacles where their foreign employees are presented as famous entertainers, important businessmen, top-20 models, diplomats, architects".
Borenstein observed that these "erotic fantasies" [fueled a] speculative frenzy" which went hand-in-hand with overbuilding in order to maintain the facade of confidence, discouraging negative financial reports which showed that demand was well overstated or even not justified.
Most of these empty developments are found in minor cities where state-run industries and mines had closed down, and new housing projects were seen by local officials as a means of diversification as well as cashing in on the property bubble.
