Bubble Watch: Is China Next?

Last month, Chi­na hit anoth­er major mile­stone. It passed Japan and became the sec­ond largest econ­o­my in the world, leav­ing only the US in its way. Give Chi­na a decade, maybe a lit­tle more, and it will inevitably surge into the lead. That’s the accept­ed nar­ra­tive.

But then we come across this: the pos­si­bil­i­ty that a mount­ing real estate bub­ble might derail Chi­na’s plans. This report from Aus­tralian pub­lic tele­vi­sion gives you a dis­turb­ing look at how the Chi­nese gov­ern­ment has pumped vast amounts of cap­i­tal into fixed assets, like com­mer­cial and res­i­den­tial real estate, to keep the coun­try’s econ­o­my grow­ing. And what they’re left with is what James Chanos (a hedge fund man­ag­er) has famous­ly described as “Dubai times one thou­sand.” Right now, there are an esti­mat­ed 64 mil­lion emp­ty apart­ments in Chi­na, and approx­i­mate­ly 30 bil­lion square feet of com­mer­cial real estate under con­struc­tion — equiv­a­lent to a five-by-five foot office cubi­cle for every man, woman and child in Chi­na. It’s one thing to read these facts, anoth­er thing to see what it all looks like. And that’s the oppor­tu­ni­ty you get above.

For a more pre­cise roadmap of what a Chi­nese crash might look like, you should spend some time with this piece in Cana­di­an Busi­ness mag­a­zine.


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  • Twaikuer says:

    Inter­est­ing sub­ject, com­plete fail­ure at any insight into under­stand­ing it.

    Chi­na’s econ­o­my is fun­da­men­tal­ly dif­fer­ent than most of the world, in that the mon­e­tary sys­tem is NOT DEBT-BASED. It is why at a time the West has devel­oped fan­tas­tic tech­nol­o­gy and improved pro­duc­tiv­i­ty, it is drown­ing in debt, while Chi­na is cre­at­ing wealth and progress at an unprece­dent­ed rate.

    Very few peo­ple under­stand how our mon­e­tary sys­tems expand the mon­ey sup­ply: by allow­ing pri­vate banks to lend mon­ey into exis­tence, ie Frac­tion­al Reserve Bank­ing. This is why even thought our econ­o­my is stran­gled by debt, the stat­ed goal of the “stim­u­lus” is to “get cred­it flow­ing” which is the same as say­ing cre­ate even more debt. Insan­i­ty.

    Chi­na is doing what the US colonies and oth­er extreme­ly pro­duc­tive soci­eties his­tor­i­cal­ly have done — spend mon­ey into exis­tence to cre­ate the infra­struc­ture for growth. So com­par­ing this bub­ble to the US one is apples and oranges.

    If you’re say­ing “cre­at­ing mon­ey leads to infla­tion”, that is only true if you cre­ate more mon­ey than ACTUAL pro­duc­tion. Our sys­tem is the worst one pos­si­ble, cre­at­ing an expo­nen­tial­ly increas­ing amount of mon­ey, but every bit of it is debt, no real mon­ey to grow the econ­o­my and cre­ate jobs.

    This sub­ject is so taboo in our media, I was real­ly hop­ing this report would be a win­dow to show the world what an uncor­rupt­ed mon­e­tary sys­tem can do. In the USA emp­ty hous­es are the result of a fail­ure of our sys­tem, in Chi­na it is more like­ly they are a stock­pile of valu­able assets ready for the com­ing boom.

    • Mike says:

      Chi­na has an uncor­rupt­ed mon­e­tary sys­tem? Now that’s a nov­el asser­tion.

      You say Chi­na is cre­at­ing a stock­pile of “valu­able” assets — but what deter­mines val­ue, if not sup­ply and demand? Do you won­der what will hap­pen to the mil­lions of Chi­nese who have invest­ed their life sav­ings in real estate? I per­son­al­ly know a few of them, and I wor­ry.

      • Twaikuer says:

        You’re singing the banker’s ver­sion of real­i­ty.

        Want a real edu­ca­tion on cor­rupt mon­e­tary sys­tems? Watch “The Mon­ey Mas­ters” on Google video.

        What is the worth of a house, is it valu­able because it is some­thing you can live in, or is its val­ue defined by a mon­e­tary sys­tem where banks are allowed to cre­ate mon­ey out of thin air, and expand and con­tract cred­it on their whim.

        Why did peo­ple invest in this real estate when this huge stock­pile of emp­ty build­ings obvi­ous­ly exists? They must believe the boom will soon be bring­ing mil­lions to the lev­el to afford to buy.

        One thing the video omits to tell us is how much of the invest­ment dri­ving up these prices is from for­eign investors, I would bet a lot of it is. The Chi­nese will real­ly have a good laugh when the dol­lar col­laps­es as the inter­na­tion­al stan­dard, for­eign investors lose mon­ey, and Chi­nese work­ers will be able to buy at a bet­ter price.

        The video notes that the aver­age cost of a house there is about 10 times the aver­age year­ly income, that’s the same as here. The dif­fer­ence is here banks cre­ate a short­age of real mon­ey so the only way to buy is with a 90% loan, there they are cre­at­ing real mon­ey, peo­ple will soon be able to buy with sav­ings.

        To com­pare this to what is hap­pen­ing in this coun­try makes no sense. Here peo­ple cre­at­ed a Ponzi scheme of real estate invest­ment, based on our mon­e­tary sys­tem which is a Ponzi scheme of debt/­money-cre­ation. There they are cre­at­ing mon­ey based on real pro­duc­tion to cre­ate a boom­ing increase in stan­dard of liv­ing. It’s the same method the Amer­i­can Found­ing Fathers used and fought for, spend­ing Colo­nial Scrip into exis­tence to build an infra­struc­ture for future growth.

        • Mike says:

          Okay “Twaikaur,” you win: Luck­i­ly for Chi­na, its legit­i­mate eco­nom­ic order was nev­er usurped by a cabal of inter­na­tion­al bankers meet­ing in smoke-filled back rooms in 1913. There­fore Chi­na’s cen­tral plan­ners are free to build an infi­nite num­ber of apart­ment units and no harm can pos­si­bly come to the peo­ple who spend their life sav­ings (and bor­row­ings from the life sav­ings of fam­i­ly and friends) on sec­ond con­do­mini­ums as retire­ment invest­ments. They are safe­ly out of reach of that wicked Fed­er­al Reserve Bank.

          Per­son­al­ly, I think we all owe Glenn Beck an apol­o­gy: the most influ­en­tial nutjob in Amer­i­ca is obvi­ous­ly Ron Paul.

        • Mike says:

          Okay “Twaikaur,” you win: Luck­i­ly for Chi­na, its legit­i­mate eco­nom­ic order was nev­er usurped by a cabal of inter­na­tion­al bankers meet­ing in smoke-filled back rooms in 1913. There­fore Chi­na’s cen­tral plan­ners are free to build an infi­nite num­ber of apart­ment units and no harm can pos­si­bly come to the peo­ple who spend their life sav­ings (and bor­row­ings from the life sav­ings of fam­i­ly and friends) on sec­ond con­do­mini­ums as retire­ment invest­ments. They are safe­ly out of reach of that wicked Fed­er­al Reserve Bank.

          Per­son­al­ly, I think we all owe Glenn Beck an apol­o­gy: the most influ­en­tial nutjob in Amer­i­ca is obvi­ous­ly Ron Paul.

  • Laowai Blog says:

    This is an unbe­liev­able cov­er­age. The num­ber of emp­ty apart­ments is astound­ing: 64 mil­lion. That will undoubt­ed­ly cause trou­ble or social unrest in the very near future.

    http://laowaiblog.com

  • Though Chi­na is try­ing very hard to cap­ture first place but it will take a lot time to reach there. This is only due to cheap labour, the things are cat­e­go­rized accord­ing to qual­i­ty and demand of dif­fer­ent coun­tries. Lets wait for a cou­ple of more years to assess prop­er­ly.

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