PBOC’s Zhou Admits China May Have Housing Bubble in ‘Some Cities’

Last Sunday I wrote (bold original)

As you can see, bubbles have risen to levels where authorities can’t hide them anymore. Instead of denying them, what they are doing today has been to downplay their risks.

China’s central bank governor has just affirmed my observation.

From the Bloomberg:

China may have a housing bubble only in “some cities,” a issue that’s difficult to resolve with a single nationwide policy, the nation’s central bank Governor Zhou Xiaochuan said.

China is a big country with multiple housing markets, many of which are still drawing new inhabitants from the countryside, Zhou said yesterday in an interview in Kigali, Rwanda, where he was attending the African Development Bank’s annual meeting.

“China is still in the process of urbanization, so there may be some kind of volatility in the supply-demand relationship,” Zhou said. “But if you look at the medium-term of urbanization, I think we still have a very good market for home sectors.”

The downscaling of risks by suggesting that bubbles are local rather than national have been an institutional or conventional response of authorities.

The US experience. 

The Washington Post on outgoing US Fed Chair Alan Greenspan in 2005…

Greenspan has said recently that he sees no national bubble in home prices, but rather "froth" in some local markets. Prices may fall in some areas, he indicated. And he warned in a speech last month that some borrowers and lenders may suffer "significant losses" if cooling house prices make it difficult to repay new types of riskier home loans -- such as interest-only adjustable-rate mortgages.

some fantastic quotes from Ben Bernanke the above video (bold mine)

In 2005

INTERVIEWER: Tell me, what is the worst-case scenario? Sir, we have so many economists coming on our air and saying, "Oh, this is a bubble, and it's going to burst, and this is going to be a real issue for the economy." Some say it could even cause a recession at some point. What is the worst-case scenario, if in fact we were to see prices come down substantially across the country?

(1:05)  BERNANKE: Well, I guess I don't buy your premise. It's a pretty unlikely possibility. We've never had a decline in house prices on a nationwide basis. So what I think is more likely is that house prices will slow, maybe stabilize: might slow consumption spending a bit. I don't think it's going to drive the economy too far from its full employment path, though.

More:

INTERVIEWER: So would you agree with Alan Greenspan's comments recently that we've got some areas of that country that are seeing froth, not necessarily a national situation, but certainly froth in some areas?

(1:34) BERNANKE: You can see some types of speculation: investors turning over condos quickly. Those sorts of things you see in some local areas. I'm hopeful — I'm confident, in fact, that the bank regulators will pay close attention to the kinds of loans that are being made, and make sure that underwriting is done right. But I do think this is mostly a localized problem, and not something that's going to affect the national economy.

When the real estate bubble bust became apparent July 2007

(4:0) BERNANKE: The pace of home sales seems likely to remain sluggish for a time, partly as a result of some tightening in lending standards, and the recent increase in mortgage interest rates. Sales should ultimately be supported by growth in income and employment, as well as by mortgage rates that, despite the recent increase, remain fairly low relative to historical norms. However, even if demand stabilizes as we expect, the pace of construction will probably fall somewhat further, as builders work down the stocks of unsold new homes. Thus, declines in residential construction will likely continue to weigh on economic growth in coming quarters, although the magnitude of the drag on growth should diminish over time. The global economy continues to be strong, supported by solid economic growth abroad. U.S. exports should expand further in coming quarters. Overall, the U.S. economy seems likely to expand at a moderate pace over the second half of 2007, with growth then strengthening a bit in 2008 to a rate close to the economy's underlying trend.

Déjà vu?

The PBoC, the US Federal Reserve, or even the Bangko Sentral ng Pilipinas all speak of the same language. It’s the language of statistical smokescreens, blanket deniability, blindness, the defense of the status quo, and most importantly, the implied worship of bubbles.