Is the current downturn in Chinese residential real estate the start of a long-feared collapse? We think not. For one thing, the government has plenty of scope to ease policy to support the housing market and the financial resources to bail out banks and local governments, if required, although we do remain concerned over the potential for the downturn to spiral beyond the control of policy makers. Furthermore, there is still a massive fundamental requirement for new housing in China as the urban population expands, low quality housing is replaced and, importantly, as the migrant population enters the formal housing market.
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