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Tuesday, March 09, 2010


is there a real estate bubble in china?

we might get an answer in coming weeks and months.

China to Nullify Loan Guarantees by Local Governments:

China plans to nullify all guarantees local governments have provided for loans taken by their financing vehicles as concerns about credit risks on such debt increases.

China Cracks Down On The Shadow Banking System That Is Inflating Its Real Estate Bubble:

China would step up work to monitor non-banking financing, said the China Banking Regulatory Commission (CBRC) Tuesday in a statement on its web-site.

More focus would be put on businesses in connection with trust companies and the real estate sector to prevent banks from using non-banking financing to circumvent policies, said Liu Mingkang, chairman of the CBRC.

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I don't know much about China but I do know that what people say about China they said about Israel... for about 100 years now. Israel has grown economically as a steady pace. Even through wars, economic isolation, climate change, political ups and downs, hyper inflation, THE worst ethnic cleansing ever... it seems to me that American think that China can not make it without them... that they think the Chines people will suddenly get lazy and stop working hard... that they will go back to apartments built in the 1950's... China's economic "wake up" is almost exactly what Israel has done in the 1970S. It is also similar to Japan, South Korea, Spain and probably Russia. I don't think that the Chinese will stop working, educating on a high level or building. Israel seemed to have had building bubbles, but in the end they were just hold-n-wait. Let's wait and see. My blog

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thanks ami.

if it were just about hard work, i think most people in most places would be just fine all the time. china will work itself out in time, and a society with a sixth of the planet's population should by rights be an economic powerhouse dwarfing the united states. it will be in time.

for now, however, china has industrialized using the trick that the US itself tried on europe in the late 19th-early 20th c -- an artificially low currency exchange rate. as then, it has allowed a massive and long-lasted trade/capital imbalance to build up. and that means china has (as the US did then) a massive productive overcapacity which will have to be worked off; this is the flipside of the US having (as europe did then) a massive debt overhang from years of overconsuming from that overcapacity.

the resulting workout will be traumatic, and probably moreso for china than the US (as was the case in the early 20th c, where the US suffered more than did europe).

i can't speak intelligently on israeli economic history, but i'd be interested to know if/when israel ever ran such a sustained economic imbalance, from which side and what in time came of it.

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