China Property Fears Stall $6.5 trillion Urbanization Plan

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Most investors are familiar with the speculative thesis that China is wrestling with a large property bubble right now, and that there may be little the international community can do to avoid the crash. The Chinese government is aware of the issues, and it’s stalling a $6.5 trillion urbanization plan on fears it will further hurt the economy.


Property Crisis In China

There are huge fears that several factors stemming from a Chinese property crash could lead to huge problems in China. Jim Chanos, who seems bearish on the country’s future says that the biggest problems are corruption, a massive shadow banking system, high levels of debt, inefficient government spending and high property values.

According to a Reuters story by Kevin Yao on the urbanization plan, picked up by, Chinese Premier Li Keqiang has stopped an urbanization proposal from the National Development and Reform Commission. China has, in the past, outlined plans to bring 400 million people into the country’s cities in the next decade.

Cities are hubs of economic activity, and though the Chinese push may seem like that cart traveling before the horse, it could work at making the country’s future much more efficient and keep overall infrastructure costs lower. China has pledged around $6.5 trillon to the plan in the allotted time period, but that may be delayed as the government worries about the country’s property prices.

China is still a very backward society in terms of urban infrastructure when compared to western nations. Improving that infrastructure will improve economic output in the future, though it’s sure to be very expensive right now. A recent Goldman Sachs Group Inc. (NYSE:GS) report on the subject found that China was 40 years behind the United States in terms of urbanization, and it might never catch up to western countries.

Chinese government is under a mountain of debt, and local governments, in dealing with the shadow banking system, are probably worse off than any one else in the country. A stimulus package that will involve the purchase and improvement of a huge amount of property might stimulate China, but it will also drive property prices up a little more, something unlikely to help the government.

That being said, China could use the $6.5 trillion package to soften the effects of a property bubble. If the plan is put into action as the market begins to slow down, it might give the country the soft landing it desperately needs.

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