[quote=gzz]OCRenter, Bloomberg’s front page has a long article by a China bear. It is the same stuff from 5-10 years ago, which the author admits he was wrong about.
The basic problem for China is the after effect of 1 child. Two generations of that means one kid can have 4 grandparents and two parents to support with no siblings or cousins. The result is a massive savings rate that isn’t allowed to be invested abroad, so negative real interest rates. Despite being “socialist” they don’t have anything like Medicare or Social Security for the elderly.
When you have negative real rates, you get investments that are profitable for the borrower even though it doesn’t produce positive real returns. Some of that investment has positive social returns. But a lot of it is just pollution and cheap exports of pastic Wal Mart junk.
Despite these issues, they still have plenty of growth ahead due to low wages and a skilled workforce.
Northern EU and Japan have had negative real rates (even negative nominal rates) for a while too. However, it is only slightly negative and only on AAA assets. And they can enjoy much higher rates abroad. China’s “financial repression” puts the average Chinese in the position of saving at 3 or 5%, often in risky assets, with 6-10% inflation. Some goes to impressive and needed infrastructure, but a lot goes to white elephant projects and propping up corrupt state owned enterprises. Or real estate speculators. Or hyperpolluting bitcoin farms.[/quote]
Thanks for the tip, I believe this is the article you mentioned. I don’t think the author is really saying he was wrong, but merely all signs pointed to a bust but that was delayed by creation of an even bigger bubble.
Lots of points the article mentioned. You touched on it as well, which is the amount of real estate speculation is absolutely unprecedented. I think I read somewhere around 60% of Chinese wealth is locked into real estate, so a real estate crash there would doom maybe even the PRC itself as an entity.
Bottom line is there has to be a reason why such draconian tightening of controls on all aspects of daily life started over the last few years, those in the know understood the country is on very shaky grounds financially and that’s a recipe for revolutions if they didn’t firm up their grip on the populace.
