For more What in the World, watch GPS on Sundays at 10 a.m. and 1 p.m. ET
By Global Public Square staff
A curious phenomenon is unfolding in China. Hundreds of couples are rushing to marriage bureaus across the country. Perhaps the first signs of spring are bringing on a sudden impulse for romance?
No, it's the opposite. These couples are filing for divorce. In each case, a husband and wife mutually agrees to quick separation, no arguing, no quibbling over money or assets. How? Why? Well, actually, it was about money and assets. A vast majority of these couples are getting divorced so they can avoid a new Chinese tax.
Beijing recently decided to impose a 20 percent capital gains fee on sales of second homes. So the theory goes, if you have two homes and you get divorced, you can register each home under separate names. Then, if you see one of those homes, you escape the new tax and, then, perhaps you can get remarried. The bizarre exploitation of this loophole tells a larger story.
At an individual level, it shows the importance of housing as an investment in China, but, at the macro level, the story shows how Beijing's new leaders are struggling to deal with some called a property bubble.
On the one hand, prices are soaring in the big cities. In Shanghai, for example, developers say property prices have risen 40 percent in one year. This is because demand has stayed well ahead of supply as more and more people migrate to big cities. On the other hand, second and third tier towns have a different problem. Here, supply exceeds demand. There are too many houses. Look at these pictures of ghost towns in China. You can see building after building, mall after mall, but no people to live in them.
Essentially, China has a two-speed property market. One is booming. The other is languishing. Now, some might say, China may have a property bubble – but it's not a big deal. They don't have the kinds of mortgage and credit cards Americans had in 2007. It was our debt that caused problem. And the Chinese National Government is certainly doing fine. The consumer is doing fine. But there are those who say China actually has a huge, hidden debt problem.
According to Morgan Stanley's Ruchir Sharma, “China's total public and private debt has soared to more than 200 percent of GDP,” the highest level in the developing world.
Sharma points specifically to private debt, a category that includes all kinds of quasi-state borrowers from local governments to state-owned enterprises.
If you look at the rate of increase of private debt, a good historic indicator of financial stress, China's levels are at dangerous highs. They are higher than the peaks experienced by many countries before the entered a crisis; Japan in 1989, the United States in 2007, Spain in 2008.
If China actually faces a credit crisis, it will plummet the whole world into recession. So China needs cut down on its rising debt which means cutting investment, which means an economic slowdown. That, too, has consequences not only for China, but for all the countries that have come to depend on endless Chinese demand.
Beijing's new leaders have a number of problems, but the new proposals announced this month, loopholes and all, do show that they're trying to act. These are leaders who have studied the mistakes by their neighbor Japan, they have examined the credit binges of Europe and America and they've got a good track record at handling their problems.
Let's hope they can manage this one even if it does cause marital stresses and strains in China.