The newswires were all abuzz that China had slipped past Japan to become the number 2 global economy.
Oh what they were saying!
Here are a couple of facts to help you get some perspective on this China Economic Growth ‘Miracle.’
1) There are over 65 million VACANT housing units in China. Sounds like a bubble to me.
2) The price of land went up almost 9 fold in Beijing since 2003, just 7 years. Here’s the graph:
3) While the Chinese stimulus actually built things, many of those things sit empty.
I happened to pull these facts from a blog called Market Oracle, written by James Quinn. He is citing work from Casey Research, which is documented as to original source on each slide. But I have been watching this “magic act” since I visited China in 2003. Almost half the world’s high rise cranes were said to be there at that time. And yet right behind our hotel was a three year old building, brand new, just like the South China Mall picture above, and also completely empty…
If the last U.S. financial crisis was a bubble made from the thin film of debt financing- WHAT WILL THE BURSTING OF THE CHINA BUBBLE LOOK LIKE GIVEN THESE FACTS?
If what I remember from my economics classes is even half right, WAIT TILL YOU SEE WHAT THE CHINESE CURRENCY EXCHANGE RATE LOOKS LIKE WHEN THIS BUBBLE BURSTS…
And about those ever skyrocketing raw materials prices based on Chinese demand to build vacant buildings, what will happen to prices for those materials when they stop building???
I am impressed at how the Chinese authorities have applied some of the best aspects of a capitalist society to achieve remarkable growth.
And yet, I can’t help but wonder if they haven’t also applied some particularly bad ideas about managing an economy, ideas that could create the mother of all bubbles.
Bubble gum photo credit.