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Will China follow Europe and the Fed and inflate its balance sheet? (XIN, CTC, CHLN)

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Like the United and Europe, the Chinese real estate market is tottering, which imperils the entire financial system. And like the United States and Europe, China's central bank will have to rescue its economy -- as it did before -- by intervening in the market.

A central bank is the biggest market maker in a country. Central banks in both China and the United States profited after the credit crunch from buying toxic assets to avert disaster, keeping interest rates low, and then selling at a profit when higher-yield paper is at a premium.

Now with its real estate on the edge, according to an article in Bloomberg Businessweek , "A Shifting Market Stings Chinese Homeowners," China must act as residential values have fallen for a third month in a row.

While not as indebted as Americans, according to the Bloomberg Businessweek piece, "Chinese have much of their wealth tied up in real estate for lack of alternative investments."

Growth in China is declining. Beijing is very concerned about a real estate bubble, with experiences in the United States and Europe as ample evidence of what not to do. Before, the central bank in China intervened successfully to save its real estate market.

The threat is certainly present: a recent article in The Economist , "House of Horrors," predicted another 50% drop in global real estate prices. This has been detailed in many articles on www.emergingmoney.com .

Wall Street certainly agrees. Xinyuan Real Estate ( XIN , quote ), a Chinese homebuilder, is down almost 30% for the year. China Housing and Land Development ( CHLN , quote ) is down more than 60% for the year.

IFM Investments ( CTC , quote ), another Chinese real estate service provider, is down more than 90% for 2011.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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