Red lines, grey rhinos and big mountains

China’s bid to stabilise its property market is causing jitters

Can it be done without harming the wider economy?


October 6th 1979 was a beautiful Saturday in Washington. 

It was not the kind of day that augured wrenching change in economic policy. 

But on that date Paul Volcker, then chairman of America’s central bank, announced a radical plan to quash persistent inflation. 

Before the battle was won, America’s interest rates reached 20% and unemployment surpassed 10%. 

Car dealers sent him the keys to vehicles they could not sell, in coffins.

China is now facing its own “Volcker moment”, according to Ting Lu of Nomura, a bank. 

The government’s aim is not to curb an inflationary spiral (China’s consumer prices are rising only modestly) but to break a vicious circle of property speculation and credit expansion. 

Regulators are making it harder for developers to raise money and for households to buy homes. 

The new rules have already pushed several property firms, including the country’s biggest homebuilder, Evergrande, to the brink and contributed to a decline in home sales. 

But are China’s rulers willing to endure anything like the economic discomfort that Volcker inflicted to achieve their goals? 

The world may be about to find out.

An Englishman’s home is his castle. 

In China, a home is much more besides. 

As well as providing shelter and security, housing often serves as collateral, nest-egg, speculative investment, bride-price and ticket to a good school. 

Housing makes up three-quarters of household wealth, according to the China Household Financial Survey, a data set compiled by academics in China. 

It accounts for the biggest chunk of household debt, which by one estimate exceeded 70% of gdp at the end of last year. 

Local governments raise 30% of their revenue by selling land to developers. 

And policymakers often rely on homebuilding to revive the economy in downturns.

Property dons other guises, too. 

The high price of housing is often likened to a “big mountain” (alongside costly health care and education) and a “grey rhino” (an obvious but neglected risk). 

In March Guo Shuqing, the head of China’s banking and insurance regulator, warned that if house prices were to drop, people holding multiple properties would not only suffer “huge losses”, they might also fall delinquent on their mortgages, endangering the banks and leading to “economic chaos”.

The government wants property to play a more modest role. 

In December 2016 President Xi Jinping said homes were for “living in, not for speculating”, a phrase that officials now often repeat. 

In 2019 the Communist Party declared that property was not a tool for short-term economic stimulus, a commitment reiterated at a meeting of the ruling Politburo in July.

The authorities are facing the grey rhino more squarely by trying to tackle the industry’s financial fragilities. 

Last year regulators capped the share of mortgages and property-related loans that banks may hold. 

They also imposed “three red lines” on prominent property developers, limiting the size of their debts relative to their assets, equity and cash. 

Now when the president of Country Garden, a high-end developer, talks of his aim to “turn green” he is not referring to the environment, but to keeping clear of those lines.


The impact of the curbs on the property market is becoming more stark. 

Sales of new homes in 30 cities tracked by Wind, a financial-data firm, fell by 23% in August compared with a year earlier, having fallen less sharply in July and June. 

Sales were also lower than in the same period of 2019, before the pandemic (see chart). 

Nomura’s Mr Lu says investors should prepare for a “much worse-than-expected growth slowdown, more loan and bond defaults, and potential stockmarket turmoil.”

Will the regulators blink? 

In the past, policymakers have been quick to ease property curbs in downturns. 

A big drop in house sales or prices over several months would probably “jolt the government into a more dovish stance”, argues Rosealea Yao of Gavekal Dragonomics, a consultancy. 

But Mr Lu believes it will be hard for leaders to reverse course. 

They have publicly committed themselves to a tighter policy and created bureaucratic momentum behind it. 

Earlier this year the central government sacked officials in the southern city of Shenzhen for failing to tame prices.

The curbs can be seen as part of the government’s new preoccupation with creating “common prosperity”. 

Unaffordable housing conflicts with this aim. 

Research by three Chinese academics—Guanghua Wan, Chen Wang and Yu Wu—has found that the cost of housing causes about 75% of China’s wealth inequality. 

It may also be one reason why China’s families now have so few children, a trend that increasingly worries the government.

To shore up growth, China may try building more subsidised homes. 

It has ordered 40 cities to construct almost 1m low-rent housing units this year. 

But it will take time to ramp up such work on a sufficient scale. 

Meanwhile, China’s growth will face other threats. 

Service industries may suffer from pandemic-related lockdowns. 

Exports may grow more slowly as manufacturing recovers abroad. 

And infrastructure spending will weaken if local governments cannot sell as much land to developers.

It is hard to imagine China pushing things nearly as far as Volcker did. 

But then Volcker himself did not foresee the full economic pain that would follow that beautiful Saturday. 

China’s hard-pressed developers may find themselves with many unsold properties in the months ahead. 

Where will they send the keys?  

Nothing ethereal about ethereum 

Chris Nuttall in London 


The ethereum blockchain has come to prominence over the past year, with its underpinning of the non-fungible token (NFT) craze and of the creation of decentralised finance projects (DeFi). 

So could ethereum be the future of the internet? asks Richard Waters.

It could become the platform of choice for what has become known as Web 3.0, where a series of decentralised apps could one day challenge Big Tech’s offerings. 

“Sixty to 70 per cent of the industry runs on ethereum. 

It’s very sticky,” says Sandeep Nailwal, co-founder of Polygon, one of a growing number of companies that operate on top of ethereum.

As a result, the price of ethereum’s currency, known as ether or eth, which is used to pay for the computing power needed to run the blockchain, has jumped ninefold. 

At around $350bn, the outstanding tokens on ethereum are now worth more than 40 per cent as much as all the bitcoin in issue, more than double the proportion of a year ago.

Line chart of $ per token showing Ethereum's recent rally

The investment world is still trying to figure out the role ethereum will play, but plenty are prepared to facilitate trading. 

Joshua Oliver reports Robinhood’s decision not to expand into Europe has created an army of contenders on this continent, led by Germany’s Trade Republic. 

Several of the apps integrate crypto. German robo adviser Scalable Capital, which has branched out into stock and crypto trading, says crypto is no longer considered “something super freaky” among younger investors.

Bubble chart showing the scale of startup fundraising by five companies in 2021

Inflation splits emerging countries into doves and hawks

More than in the developed world, rising prices already pose a real threat to stability

Jonathan Wheatley in London

A street market in Rio de Janeiro. Brazil has increased interest rates several times this year to begin to bear down on rising prices © Ricardo Moraes/Reuters


A year ago, while emerging markets grappled with whether they could afford to lock down their economies, richer governments side-stepped the dilemma by doling out giant fiscal support packages.

Today, a big question the developing world faces is whether to raise interest rates to curb inflation — another problem that western central bankers have so far been able to delay.

More so than in the west, rising prices already pose a threat to the economic stability of emerging markets. 

One reason for that is the rapid increase in global food prices, which are now near their highest level in a decade, according to a closely watched UN index.

That price surge mirrors what happened before the Arab Spring protests of 2010 and 2011. 

“Last time it was the Middle East,” said Hasnain Malik, emerging market strategist at Tellimer, a consultancy. 

“Who’s to say the next time won’t be in parts of Latin America or Asia?”

How to deal with the issue is dividing emerging market central banks into inflationary hawks or doves. 

In Latin America alone, every major economy has now surpassed its central bank’s inflation target. 


In the hawkish camp are countries such as Brazil and Russia, which have increased rates multiple times this year to begin to bear down on rising prices.

In Moscow inflation is a particularly sensitive issue ahead of this month’s parliamentary election amid soaring food prices. 

Last week the central bank showed its hawkish credentials when it warned of a 2008 style financial crisis if global inflation was not kept in check.

It has already raised rates by 2.25 percentage points to 6.5 per cent, and another rise is expected on Friday.

Brazil’s central bank has also tried to get ahead of rising prices, lifting its policy rate from a record low of 2 per cent at four successive policy meetings.

A market stall in Kashira, a town south of Moscow. Among the hawks, only Russia has interest rates higher than inflation © Andrey Rudakov/Bloomberg


But inflation has continued to rise as the Brazilian real has slumped against its trading partners and as investors have been unnerved by president Jair Bolsonaro’s response to the coronavirus pandemic and his increasingly anti-democratic rhetoric.

By contrast, among emerging market doves, which include Turkey and Poland, governments are openly driving for growth and prices are rising fast.

In Poland, where the nationalist governing PiS party is running an expansionary budget, inflation has hit a decade high of 5.4 per cent — prompting one former central bank chief and government critic to warn that failing to squash rising prices would risk a “catastrophe”.

Yet as Adam Glapinski, the dovish current head of Poland’s central bank, said this week, lifting borrowing costs would be “very risky”. 

On Wednesday, the bank left its benchmark rate at 0.1 per cent.

In Turkey, meanwhile, prices are surging 19.25 per cent as the economy grew almost 22 per cent in the second quarter.

Sahap Kavcioglu, the central bank governor, has pledged that the bank’s policy rate, currently 19 per cent, would remain above inflation. 

But on Wednesday he said the bank would base its policy on core inflation rather than the higher headline figure, undermining that promise.

Timothy Ash of BlueBay Asset Management said Kavcioglu “will cut at the very earliest opportunity”. 

Since 2019 President Recep Tayyip Erdogan, a self declared “enemy of interest”, has fired three central bank chiefs after they tightened policy too much.



Analysts say that how hard governments locked down to fight the pandemic has had a determining inflationary role.

Those countries that did not seek to close down their economies are now experiencing faster growth and more inflation, as in India.

“For those [governments] that absorbed the pain of illness, hospitalisation and death from Covid, the flip side is that they allowed their economies to breath,” said Malik. 

“That means activity is carrying on and driving up inflation.”

In countries that locked down harder the opposite is true, as in South Africa and parts of Asia.

In Thailand, which at present has some of the world’s harshest lockdown restrictions, inflation more than halved to 0.02 per cent in August. 

In South Africa, which locked down heavily last year and has nevertheless been hard hit by Covid-19, inflation fell in July to its lowest in three months.

In such countries “there is really a deflationary story going on,” said Tatiana Lysenko, lead emerging markets economist at S&P Global Ratings.

As for China, which has taken a zero-Covid approach to the pandemic, producer prices are rising, spurred by rising international demand. 

But consumer price inflation has fallen to about 1 per cent and the central bank is expected to ease monetary policy to keep the recovery on track.

It is a question for policymakers everywhere: which is worse, stagnation or instability. 

But in emerging markets the stakes are arguably higher if inflation gets out of control.

Even among the hawks, only Russia currently has interest rates higher than inflation. 

The rest may have to raise their rates much further yet if they are to bring prices back under control.


Additional reporting by Ayla Jean Yackley in Istanbul

Joe Biden's Afghan Nightmare

A shaken Biden administration is now trying to change the subject away from Afghanistan by turning to domestic issues. But extricating itself from the consequences of its Afghanistan decisions, however warranted, may take longer than the administration envisions.

Elizabeth Drew


WASHINGTON, DC – It is far from clear that President Joe Biden deserves the obloquy heaped on him for the US evacuation from Afghanistan. 

This is especially true given the endings of other American wars, and the nearly impossible situation confronting him – in particular, that the Kabul airport is located within a city of millions which had just come under Taliban control.

The repetitive airing of scenes of panicked Afghans clinging to C-17 cargo planes after this was no longer happening made for far more dramatic, but misleading, scenes than the smooth take-offs that followed during the next 17 days of evacuation, yet news programs kept rerunning those chaotic images, creating an impression of Biden as hapless. 

Yet, some 120,000 people – including troops of US allies as well as Afghans who had helped the US cause – were evacuated by air from Kabul, a logistical triumph.

Since Biden chose to end the evacuation by August 31, the date he had set, a few hundred Americans – some not ready to depart, many unable to reach Kabul airport – as well as hundreds of Afghans who had worked with the United States, were left behind. (A few have been evacuated since.) 

But Biden faced only bad choices. 

Had he prolonged America’s presence, US troops and those of allies would have been put at more risk, especially from the murderous Islamic State (ISIS) offshoot that had begun a campaign of suicide bombings.

The retreat from Afghanistan has revealed much about the nature of the government that Biden is running and how he runs it. 

Although Donald Trump – who also wanted to get out of Afghanistan – left Biden with an unworkable settlement with the Taliban, Biden’s decisions on withdrawal were mostly buttressed by his long-held belief that, when al-Qaeda was driven out of Afghanistan and Osama bin Laden killed, America’s strategic needs had been met. 

Despite his deep convictions about the correctness of his decisions, Biden brought trouble on himself by offering cheery predictions – such as that the Afghan government wouldn’t fall any time soon. 

When that proved unrealistic, Biden became defensive, even belligerent, which dented his reputation as a nice guy.

Another factor that may have played a role in shaping Biden’s Afghan policy is the striking difference in the nature of the president’s foreign and defense policy team and his domestic policy advisers. 

The latter is comprised of former mayors, governors, members of congress, and at least one business executive – people of independent standing. But Biden’s national security team is dominated by former aides. 

The soft-spoken Secretary of State Antony Blinken is a loyal, longtime Biden adviser. 

National Security Adviser Jake Sullivan, a youthful-looking 44, was Biden’s national security adviser as vice president. 

Biden often cites the concurrence of his advisers as confirmation of the wisdom of his decisions, but one gets the strong impression that he makes clear to them what advice he wants.

Secretary of Defense Lloyd Austin does carry an aura of independence and gravitas. 

Austin speaks slowly and carefully, and with that authority that comes almost naturally to a former four-star US Army general. 

He projects confidence without drama, and holds his views tight. A senator said, “I wouldn’t want to play poker with him.” 

Austin managed the draw-down of American troops in Iraq, where he had worked closely with the president’s deceased son Beau, both qualifications that undoubtedly stood him well with the president. (Biden’s continuing invocations of Beau, occasionally at truly awkward moments, is beginning to worry even some of his close allies.)

Republicans, who had been frustrated in their search for an effective means to attack Biden, have seized the opportunity provided by the chaotic withdrawal despite the fact that the decision to end America’s 20-year Afghan war was widely popular. 

Despite this inconsistency on the part of the US electorate, for the first time since the inauguration Biden’s job-approval ratings have dipped below 50%. 

Even some Democrats, their fingers held up to the wind, are planning to ask awkward questions of Biden and his team.

But what, exactly, is Biden to be blamed for? 

His administration is widely charged with not having planned for an evacuation, but Senator Tim Kaine of Virginia, a Democrat and member of the Senate Foreign Relations Committee, who deals with the White House a lot, told me, “They had a plan on the evacuation, they didn’t think they would need to execute so quickly.”

Biden’s administration, although less rancorous and leaky than most (thus far), does follow in the tradition of military and intelligence leaders differing markedly in their assessments of the quality of the Afghan army. 

Having spent $83 billion on training and equipping the Afghan army, the military has tended to view its efforts as a success. 

The intelligence agencies have been more skeptical. Kaine said, “The military has always been more optimistic, the intelligence community has always been more pessimistic, and the State Department kind of in between – depending on the circumstances. 

At the end of the day Biden’s team probably believed a little more of the military optimism.”

Previous US presidents tended to relay to the public the bright side of America’s efforts in Afghanistan. 

In a ground-breaking series published in 2019, The Washington Post exposed the lies that presidents George W. Bush, Barack Obama, and Trump all told the country, such as how wonderfully the war in Afghanistan was going. 

Thus, most Americans were unprepared for the sudden collapse of the Afghan army or the flight of Afghan President Ashraf Ghani (with bags of money) when the Taliban strolled into Kabul.

Defense Department officials insist that no one warned them that the Afghan army would collapse within 11 days, but this could be a failure of imagination as well as of intelligence. 

In any event, there is intelligence and then there is how intelligence is interpreted. 

For example, Bush’s administration had received ample evidence that al-Qaeda was preparing to attack the US, even the World Trade Center, but leading figures brushed off the warnings. 

France, acting on the same intelligence about Afghanistan that the US government had, began to withdraw its troops in 2014.

A shaken Biden administration is now trying to change the subject away from Afghanistan by turning to domestic issues. 

But extricating itself from the consequences of its Afghanistan decisions, however warranted, may take longer than Biden envisions.


Elizabeth Drew is a Washington-based journalist and the author, most recently, of Washington Journal: Reporting Watergate and Richard Nixon's Downfall.