The rotten foundations of China’s real-estate market

JUST over a year ago, policymakers were having conniptions about China’s tumbling stockmarkets. Now it is China’s frothy property market that is causing worries at home and abroad. Because the property sector accounts for about a quarter of demand in the world’s second-largest economy, a market collapse would have far more than a local impact. In fact, for now, China can probably avoid a disastrous crash (see ). But it shows little sign of being able to implement the fundamental reforms needed to fix the distortions that make the market so volatile and, in the long run, dangerous.One reason for optimism that a crisis can be averted is that the risk has been identified. With property prices in many big cities soaring—by more than 30% a year in Shanghai, Shenzhen and Nanjing—even the central bank’s chief economist has warned of a “bubble”. Wang Jianlin, China’s richest man (and a property developer), last month went further, calling it “the biggest bubble in history”. Foreign-bank economists, local brokers and state-run think-thanks have all joined in. Fears have been stoked by a steep rise in mortgages this year. In July and August, they accounted for nearly 80% of new bank loans.