A Chinese Bump in the Road

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This doesn’t sound good:

China’s banking regulator told lenders last month to conduct a new round of stress tests to gauge the impact of residential property prices falling as much as 60 percent in the hardest-hit markets, a person with knowledge of the matter said….Previous stress tests carried out in the past year assumed home-price declines of as much as 30 percent.

The tougher assumption may underscore concern that last year’s record $1.4 trillion of new loans fueled a property bubble that could lead to a surge in delinquent debts. Regulators have tightened real-estate lending and cracked down on speculation since mid-April, after residential real estate prices soared 68 percent in the first quarter from a year earlier.

This comes via Ryan Avent, who says:

Whatever it means for China, it’s unlikely to be good for the rest of the world. China is likely to try and innoculate itself against a housing-driven slowdown by turning up the support for exporters while the financial fall-out settles. If it does, it will siphon demand away from other economies. But if it doesn’t, the housing hit to China’s economy will be more severe, which will have much the same effect — a reduction in the demand boost from China to the rest of the world.

It may just be a bump in the road to global recovery, but every bump is a big one these days.

Bumps make me very, very nervous these days.

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