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Monday, December 12, 2011

China... Bubble of all bubbles

China's economic growth has been unprecedented. Many economists forecast that within 1 decade, their GDP will eclipse the GDP of the United States. But these forecasters overlook the Chinese policies that created the biggest economic bubble in history and the likelihood that this bubble will either deflate slowly or burst. Regardless of the degree of bursting, as a consequence, many global economies will inevitably collapse.

The biggest component of their economic bubble is construction and building, principally Real Estate.  It's crashing would play out worse than the 1989 Real Estate crash in Japan. Before their bubble was started, Japan's economy was robust and balanced. When their Real Estate bubble started growing, a significant percentage of their population were able to buy into the early stages of their Real Estate bubble and economically prosper. In China, a much smaller percentage of their population, the connected and early adopters of Chinese economic reforms, benefited and prospered from the rise of Chinese Real Estate. Even though the rising values of Chinese Real Estate were not predicated by a credit bubble, the rate of speculation quickly drove up prices way beyond what the majority of the growing middle class could afford. Combined with the systemic corruption of local government officials, a Chinese Real Estate crash could be socially explosive.

It may be that Beijing has lost control of their economy and is implementing measures to delay and deal with the coming crash and social unrest. It may also be that other countries are implementing measures to delay and deal with the coming crash and social unrest their countries.

1 comment:

  1. is not going to happen, most of the projects are state owned, meaning they have plenty of leverage and 100% "paid" (by the state), whether the state is able to sell or mot is a different question.

    ReplyDelete

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