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China’s $42-Trillion Debt Bubble Looms Larger than Trade War

Trade tensions between the United States and China may not be the biggest concern. Research by Nairu Capital shows that a massive $42 trillion debut bubble has accumulated on assets held in China’s real estate and banking sector.

The research group writes that a relatively small spark, such as the trade war, could be the spark that pops China’s massive debt bubble. Nairu Capital points out a recession could be driven by a credit crunch that reverberates across China’s real estate and banking sector. China’s total public and private debt load is estimated to be more than 300% of its GDP.

The Chinese government has forced banks to de-leverage in an effort to improve its economic financial health, but further deterioration has occurred, with much of its debt shifting onto its burgeoning real estate sector.

China has a high 90% homeownership rate, despite a 37X property cost to income ratio. Chinese put more than 70% of their disposable income into real estate, which Nairu Capital points out the problem, beyond the obvious unproductivity, would be illiquidity. An economic shock could cause a nearly endless supply of panic, writes Nairu Capital, as there would be no source of liquidity in sight.

That’s because Chinese capital controls limit most external investments, which could provide diversified liquidity. To get their money back, an average Chinese worker would have to sell. And since a large portion of China’s GDP and income is tied to real estate (roughly 30%), any housing price decline could cause large declines in average national incomes and jobs.

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About Dennis Kaiser

Dennis Kaiser is Vice President of Content and Public Relations for Connect Commercial Real Estate. Dennis is a communications leader with more than 30 years of experience including as a journalist and in corporate and agency marketing communications roles. He is responsible for Connect’s client content operations and is involved in a range of initiatives ranging from content strategy, message development, copywriting, media relations, social media and content marketing services. In his most recent corporate communications roles, he led a regional public relations effort across Southern California for CBRE, played a key marketing role on JLL’s national retail team, and was responsible for directing the global public relations effort at ValleyCrest, the nation’s largest commercial landscape services company. In addition to his vast commercial real estate experience, Dennis has worked on communications and launch strategies for a number of residential projects such as Disney’s Celebration in Florida, Ritter Ranch in Palmdale California (7,200 homes, 22,000 acres), WaterColor in Florida and PremierGarage in Phoenix. Dennis’s agency background included firms such as Idea Hall and Macy + Associates. He has earned an outstanding reputation with organization leaders as a trusted advisor, strategic program implementer, consensus builder and exceptional collaborator. Dennis has developed and managed national communications programs for Fortune 500 companies to start-ups, both public and private. He’s successfully worked with journalists across the globe representing clients involved in major-breaking news stories, product launches, media tours, and company news announcements. Dennis has been involved in a host of charitable and community organizations including the American Cancer Society, Easter Seals, BoyScouts, Chrysalis Foundation, Freedom For Life, HOLA, L.A.’s BEST, Reach Out and Read, Super Bowl Host Committee, and Thunderbirds Charities.

  • ◦Economy
  • ◦Sale/Acquisition
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