Yesterday, the China Banking Regulatory Commission (CBRC) announced stress testing of banks with modeling to include a 60% price fall of house prices in China’s 7 top tier cities including Beijing, Shanghai and Shenzhen.
Today, it has been reported the stress tests will not only include banks, but extend to other industries closely linked to housing such as cement and steel. The China Daily reported :
“The banking system has made quite a lot of loans to industries upstream and downstream from the real estate market and their risks are intimately connected to the real estate market,” the Shanghai Securities News said. “Therefore, regulatory agencies have demanded that corresponding stress tests should also be conducted for industries such as steel, cement and building materials.
The stress tests follow recent reports that 64.5 million urban electricity meters recorded zero electricity consumption over a 6 month period. Based on these numbers, it is predicted China could house 200 million people in these empty apartments. This should come as no surprise as in April, we reported on a China Reality Research report suggesting nearly a fifth of all recently sold properties were kept vacant.
Due to low interest rates, cash deposits in China fail to keep up with Inflation. As a result Chinese prefer to put their money into assets that “hold value” such as property. In a blog published by the Sydney Morning Herald, Malcolm Turnbull writes :
One property analyst was very candid when asked why there were so many apparently unoccupied flats in Beijing as there were no lights on at night: “The flats are occupied. Cash is living there.”
Stress testing on other industries should raise concerns back in Australia. How much of our resources and mining boom was a result of China’s housing bubble, and what will be the impact for Australia when it pops?
» China widens stress tests to steel, cement – media – The China Daily, 6th August 2010.