October 31, 2021
Why Rogoff et al. (And Chinese Policymakers) Are Wrong
The Evergrande debacle has not yet morphed into a pernicious Chinese “Lehman moment”, but it has stoked deeper concerns in the marketplace about the health of the Chinese real estate sector. Mainstream financial media frequently quotes a 2020 paper, “Peak China Housing”, authored by renowned Harvard Professor Kenneth Rogoff, highlighting Chinese real estate excesses. In our view, the paper lacks historical context, and confuses housing demand in China, a rapidly urbanizing economy, with that of fully urbanized countries where housing demand is a lot more measured and stable. Therefore, the conclusion that China’s housing market is overbuilt is highly questionable.
What’s more troubling is that Chinese policymakers have long held similar views – that domestic housing excess needs to be reined in – such that they have been imposing increasingly draconian measures to lean against the housing bubble. Evergrande and other developers’ current financial stress is the direct casualty of policymakers’ increasingly aggressive ambush. Without an immediate and material relaxing of financing rules applied to developers, this sector risks causing systemic fallout under the heavy weight of ill-conceived policy tightening.
