Chinese Entrepreneurs View Real Estate Bubble As Biggest Threat to Economy

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A new survey of Chinese entrepreneurs points to a sustained rise in confidence, yet acute concern over the economic threat posed by China’s real estate bubble.

The “China Entrepreneur Development Confidence Index” (中国企业家发展信心指数) for the first half of 2017 has posted increases relative to both the preceding half and the same period last year to tap 55.57, maintaining a continuous trend of increase ever since bottoming out in the second half of 2015.

Labour costs remain the biggest constraint on the confidence of Chinese entrepreneurs – a situation which has remained unchanged for the past three years.

The index, which is jointly produced by the China Entrepreneurs Forum and the Institute of Minsheng Economic Research, Tsinghua University, seeks to measure the overall confidence of Chinese entrepreneurs in the country’s economic prospects.

While the confidence of Chinese entrepreneurs in the health of the economy may be on the uptick, survey participants remain highly concerned about the potential for a real estate bubble, credit crisis or stock market crash to cause major upset.

76% of survey respondents said that the Chinese economy’s biggest “grey rhino” was a bubble in the real estate market, while 42.9% pointed to credit and lending and 37.3% to the stock market as major threats.

The “grey rhino” is a concept first touted by US finance journalist Michele Wucker that has garnered broad popularity in Chinese business circles, and refers to a highly likely, heavy-impact threat that remains overlooked or neglected.

When asked about the primary causes of the real estate bubble, 54.1% of survey respondents said that it was the result of local government using the sector to boost GDP, 51.3% also pointed to irrational industry policies, yet only 30.8% identified monetary policy as a key culprit.

With respect to what factors are most likely to burst China’s property bubble, 58.1% of survey respondents pointed to real estate price controls, 47.9% said that a rise in inflation would play a factor, while another 47% indicated that tightening credit policies could have an impact.

When asked about the best means of taming the grey rhino of a real estate bubble, the three measures most strongly supported by Chinese entrepreneurs were strengthening of financial regulation, ensuring that capital was properly directed towards the real economy, and reductions in levels of leverage.

 

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