Hainan real estate bubble in the 1990s

What did the investors and government do after the burst of the bubble?  They did do their best to minimize the impact, but the process may be much longer.  There were actually three stages in the process: From 1994 to 1996, with the promulgation of the national macro-control policy at that time, some visionary real estate developers and financial institutions instinctively disposed of their real estate assets through price reductions, auctions, debt settlement and other methods, which minimized their losses and preserved assets. From 1996 to 2002, the government organized a comprehensive disposal of real estate losses. The Hainan government has issued regulatory documents that have provided legal weapons for expediting the disposal of the backlog of real estate. From 2002 to the present, in order to speed up the pace of disposal and revitalize financial assets, the State Council has approved a new plan that for Hainan Provincial Government to set up an asset manageme...

So, how did the burst of bubble impact the financial system?  The answer is: by destroying the trust system. In order to solve the financial disaster of trust companies’ huge amount of investment in real estate, on August 18, 1995, the Hainan Provincial Government led the establishment of the Hainan Development bank，which is also called as the Haifa bank. The governor of the People's Bank of China Hainan Branch said that Hainan, which was in the process of large-scale development, still needs a lot of construction funds and local companies need better financing services. The Hainan Development Bank lives up to his expectations. At the end of 1996, its total assets issued was the US $ 8.63 billion , and 59% of its debts were paid off.  Sounds wonderful, right? It's a trap! The method of achieving such high-speed development is mainly ultra-conventional high-interest deposits and interbank borrowing. The interest rate for deposits issued at the end of 1995...

Before the Burst of the Bubble There were signals indeed, that warned people about the fact that the bubble was closed to burst.  It is said that  Pan Shiyi, the lucky young man,   used two kilos of oranges to exchange some project materials from the staff of the Hainan Planning Bureau and learned that the per capita reported construction area in Haikou City reached more than 50 square meters. At that time, the per capita reported construction area in Beijing was only 7 square meters. The real estate supply in Hainan was far beyond actual needs. A more reliable statement is that Pan Shiyi, have received news from the government: a macro-control document was about to be issued. Although he did not anticipate the consequences of the regulation, he insisted on the idea of leaving Hainan. Early In 1993, Pan and his friends left for Xi'an, Beijing, Shanghai, and other big cities to find new opportunities. They left at the right time. Government’s Act Pan's ...

                          Reform is China's second revolution                                                                       Deng Xiaoping 1988, Deng Xiaoping, the leader of both the country and the communist party of China, stressed his position of continuing China’s reforming and opening-up policy. Three years later, a new province was separated from Guangdong province and became the province of Hainan. Learning from the dramatic rise of Shenzhen, China was determined to expand the scope of special economic zones. The youngest province was not only the largest island of mainland China but also the largest special economic zone. How did the reform change Hainan?  The story of Shenzhen’s success was the best propaganda of wo...

A real estate bubble or housing bubble is a type of economic bubble that occurs periodically in local or global real estate markets, and usually followed by a rapid increase in the market price of real property until they reach unsustainable levels and then decline. 【 1 】 An economic bubble is an inevitable issue when a speculative opportunity occurs, and assets are traded at prices deviate from their intrinsic value. When the market continuously operates in an abnormal state, the risk will accumulate rapidly to the edge of a financial crisis. Hence, bubbles are often related to the overheated markets, defects of banking and regulation systems and frauds.  China is known for its stable economic policies as the government remains a dominant position in economic management.  Did China ever encounter with a bubble? The answer is YES. Looking back to the 1990s, a decade since China conducted reform and opening-up policy and embraced the market-oriented eco...