China's Real-Estate Frenzy
Understanding government policy has long been the key to making money in China's property and stock markets.
The main tools to regulate growth were administrative: government orders to banks to stop lending and to companies and local governments to halt projects. And that's what Beijing is still trying, increasing banks' reserve ratios and cutting lending quotas.
But this time nobody is listening. Local governments and banks have set up off-balance sheet vehicles to conceal loans and keep the spending boom going. Fitch Ratings estimates that not only did banks exceed the central bank's 7.5 trillion yuan ($1.1 trillion) cap on lending for this year, they made an additional three trillion yuan of these shadow loans.
At the peak of the bubble, US houses cost 6.4x average earnings, Beijing currently is at 22x.