If China’s Property Bubble Bursts
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If China’s Property Bubble Bursts

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In October, Beijing announced that four city and provincial governments – Shanghai, Shenzhen, Zhejiang and Guangdong – would be allowed to start issuing bonds for the first time in China’s history.  Zhejiang is expected to issue $8 billion yuan in bonds, including half three-year bonds and half five-year bonds. The proceeds are intended to fund infrastructure projects already under construction.  

But why now?  What was the impetus for this unusual step? 

Quite simply, it’s a financial pacifier – recent central government policies aimed at cooling down real estate have hurt local governments, who rely on land sales and development fees as their most important sources of revenue.  As these revenues fall, local governments will become increasingly desperate to find other means to finance infrastructure projects and social services.

Real estate has certainly been a boon for local governments.  Land revenue, garnered from a variety of fees and taxes, is particularly attractive because it’s considered extra budgetary income, which isn’t counted in the central government’s accounting of local government budgets and thus can be kept and used with no strings attached by local governments.  As a result, the revenues coming from commercial and residential land leasing and sales have become the most important source of local revenue, accounting for 30 percent to 50 percent of rural government revenues, and 50 percent to 60 percent of city government revenues. 

Real estate has also made a difference to local officials politically: local officials are evaluated for promotion based heavily on the rates of growth in their jurisdictions, as well as the amount of revenue they collect and their revenue contributions made to higher levels of government.

Land transfer fees form another crucial piece of the pie: in 2007, land transfer fees were 67 percent of Sichuan Province’s local revenue, and 40 percent of Chongqing’s. In 2010, land transfer revenues totaled 3,000 billion RMB ($464 billion), which was more than 70 percent of local government revenues. This year, HSBC estimates that land transfer revenues will be less than 2,000 billion RMB. 

Clearly, local governments depend heavily on revenue from land sales, transfer fees, and other real estate-related fees and taxes. Now, after years of gangbuster growth, central government policies aimed at avoiding a bubble burst have dampened the real estate market. 

Property prices have finally begun to slow this autumn, with average property prices in a 70-city index seeing their first monthly decline in several years.  In addition to the impact of the current slowing, there also remains the possibility that the real estate bubble could burst.

Unlike the U.S. bubble, a bubble burst in China wouldn’t spell doom for the homeowner – in China, real estate investment is a vehicle for saving, not borrowing, and required down payments are 30 percent to 40 percent, limiting debt levels.  Instead, local governments will take the brunt of the slowdown or bubble burst as result of their heavy reliance on real estate revenues.  

As mentioned, local governments will experience a significant loss of revenue, and not just from a decline in land sales: local governments also rely on income from construction and the production of raw materials that goes into construction.  

In 1994, fiscal decentralization reformed China’s revenue sharing system, effectively reducing local governments’ share of the central revenue stream while increasing their responsibility for providing social goods.

Comments
16
WoW
December 17, 2011 at 15:01

I suppose a proper response must begin with an analysis of your own, so let me begin by demystifying your source of defense. The link to the Pew Research Center’s article discusses the rising gap in “median wealth” between the average white, Hispanic, black, and Asian household in the United States from 2005 to 2009. But before we continue, let’s start with a few definitions:

1. Household “net worth” (wealth) is the sum of the market value of assets owned by every member of the household minus their liabilities (debt). This is further defined as the accumulated sum of assets (houses, cars, savings and checking accounts, stocks and mutual funds, retirement accounts, etc.) minus the sum of debt (mortgages, auto loans, credit card debt, etc.). It is different from “household income” (your USA Today link), which measures the annual inflow of wages, interest, profits and other sources of earning. It has been noted that “wealth gaps” between whites, blacks and Hispanics have always been much greater than “income gaps”.

2. A median is the midpoint that separates the upper half from the lower half of a given group; a mean is an average, and, in the case of wealth, the average is driven upward by households with high net worth. Again, the article stresses that the “mean differences” are not as dramatic as the “median differences.”

We now move on to the meat of the article where it talks about how this median discrepancy came about. Most of the following text, though a summary of sorts, will be a near paraphrase of what can be found in the article.

Minority households experienced greater losses because they are more dependent on home equity as a source of wealth. Their findings show that in 2005 Hispanics derived nearly two-thirds (65%) of their wealth from owned homes. No other asset accounted for more than 10% of total net worth. Given the large role played by housing, the decrease in real estate values from 2005 to 2009 had a large negative impact on the net worth of Hispanic households. Their mean wealth fell from $122,649 in 2005 to $73,026 in 2009, a loss of $49,623. Almost all of this loss is attributable to declining home equity levels. Like Hispanics, black households drew a large share (59%) of their net worth from home equity. Only one other asset—401(k) and thrift accounts—contributed more than 10% at the time. Thus, like Hispanics, the bulk of the loss in mean wealth is accounted for by falling levels of home equity. Hispanics and Asians were further affected because they are disproportionately likely to reside in states that have been among the hardest hit by the housing crisis. And, to your probable surprise, the net worth of Asians during this same period also fell from $168,103 in 2005 to $78,066 in 2009, a drop of 54%.

Furthermore, the negative effects of the Great Recession—lost jobs, record long spells of unemployment and dwindling incomes—are likely to have had an impact on household net worth above and beyond the direct effect of falling asset prices. One important feature that was pointed out was that in economic downturns minorities tend to experience greater increases in unemployment. The Great Recession is no exception. Job losses were higher for Hispanic and black workers than for whites. A related consequence of this was a decline in household income.

To further this point, there have been studies that show that two income earner households are far more common among the top quintile of households than the general population in America (http://pubdb3.census.gov/macro/032005/hhinc/new05_000.htm). The 2006 U.S. Census Bureau data indicates that over three quarters, 76%, of households in the top quintile, with annual incomes exceeding $91,200, had two or more income earners compared to just 42% among the general population and a small minority in the bottom three quintiles. As a result much of the rising income inequity between the upper and lower percentiles can be explained through the increasing percentage of households with two or more incomes (http://www.news.harvard.edu/gazette/2003/10.30/19-bankruptcy.html).

Overall, the net worth of the typical U.S. household decreased from $96,894 in 2005 to $70,000 in 2009, a loss of $26,894. However, median net worth in assets other than home equity fell by only $3,522, from $17,088 in 2005 to $13,566 in 2009. These estimates suggest that the total loss in net worth emanated principally from declining levels of home equity. The corrosive effect of the housing downturn was the deepest for Hispanics and blacks. Median net worth exclusive of home equity decreased only $479 for Hispanics and $626 for blacks. With housing included, their losses were $12,034 and $6,447, respectively. Similarly, white and Asian households would have experienced only a small fraction of their actual losses if not for the housing downturn.

These numbers merely reinforce what economists have known for a long time: Diversity in a portfolio matters. Although Hispanics and blacks are less likely than whites and Asians to own homes, their wealth is relatively more dependent on home equity. That is because whites and Asians are much more likely to own financial assets and have more diverse portfolios. More than 80% of whites and Asians own interest-earning assets at financial institutions, compared with about 60% of Hispanics and blacks. Whites and Asians are also three to four times as likely as Hispanics and blacks to own stocks and mutual fund shares. For example, in 2009, 27% of whites owned stocks and mutual fund shares, but only 7% of blacks owned then. And almost as large a disparity exists with regard to IRA or Keogh accounts—about 35% of whites and Asians were owners compared with about 11% of Hispanics and blacks. Ownership rates for 401(k) and thrift savings accounts are about 45% for whites and Asians but only about 25% to 30% for Hispanics and blacks. This is significant because although housing values started to fall sooner than stock prices, unlike the stock market, the housing market has not yet begun to recover.

To put this all in perspective, owned homes also are the largest single source of wealth for white households, but in contrast financial assets are relatively more important to their economic well-being. Stocks and mutual funds, IRA and Keogh accounts, and 401(k) and thrift accounts were responsible for 28% of the net worth of white households in 2005 compared with 19% for blacks and 15% for Hispanics. And although white households were also affected by the housing crisis, those losses had (proportionally) a lesser impact on their overall wealth.

During the period under study, wealth disparities increased not only between racial and ethnic groups, they also rose within each group. Even though the wealthiest 10% of households within each group suffered a loss in wealth from 2005 to 2009, their share of their group’s overall wealth rose during this period. Among all U.S. households, the share of wealth held by the top 10% increased from 49% in 2005 to 56% in 2009. The increase in the degree of concentration at the top was the greatest among Asians and Hispanics. The share of the top 10% went up from 44% to 61% among Asians and it rose from 56% to 72% among Hispanics. Among blacks, the share increased from 59% to 67%. The increase in wealth disparity was the lowest among whites, with the share of the top 10% increasing from 46% to 51%.

It is interesting to note that the relative inequality is almost identical to that of the United States despite the vast difference in the per capita incomes of the two countries (http://www.competition-regulation.org.uk/conferences/Brazil/Papers/Coes.pdf). This paper shows that both Brazil and China provide examples of economies in which increasing per capita income is accompanied by rising relative inequality. The author goes on by saying that it is clear from the examination of both countries’ experience in recent decades that growth has raised the welfare of the poor as well as the rich—even if those already better off have benefited much more. When countries have stumbled, as Brazil did between 1981 and 1992, it is the poor who have suffered most. And there are more examples. Just look here (http://www.chinadaily.com.cn/bizchina/2011-12/08/content_14233856.htm), here (http://news.bbc.co.uk/2/shared/spl/hi/picture_gallery/04/asia_pac_china0s_wealth_gap/html/1.stm), here (http://www.reuters.com/article/2010/08/12/us-china-wealth-idUSTRE67B1W720100812), and here (http://www.china.org.cn/china/2011-12/06/content_24082912.htm). These links will describe China’s situation with uncanning similarity. This proves that the rising income gap is not a strictly American phenomenon.

Let’s move on. Have you ever heard of the “model minority” stereotype in the United States (http://en.wikipedia.org/wiki/Model_minority)? An example of the Model Minority stereotype are phenomena, such as the high rates of educational attainment and economic success in the Indian American community. Pointing to generalized data, another argument for the Model Minority stereotype is generalized data such as from the U.S. Census Bureau, where the median household income of Asian Americans is $68,780, higher than the total population’s $50,221 (http://factfinder.census.gov/servlet/IPTable?_bm=y&-qr_name=ACS_2009_1YR_G00_S0201&-qr_name=ACS_2009_1YR_G00_S0201PR&-qr_name=ACS_2009_1YR_G00_S0201T&-qr_name=ACS_2009_1YR_G00_S0201TPR&-geo_id=01000US&-ds_name=ACS_2009_1YR_G00_&-reg=ACS_2009_1YR_G00_S0201:012;ACS_2009_1YR_G00_S0201PR:012;ACS_2009_1YR_G00_S0201T:012;ACS_2009_1YR_G00_S0201TPR:012&-_lang=en&-redoLog=false&-format=). However, there are extreme ranges of income by ethnic group, with some Asian American ethnic groups at the poorest levels of income in the US. The problems with the Model Minority Myth are often due to regional generalizations of the vast numbers of ethnic groups, which each have vastly different histories and immigration patterns, which in turn impact the experience and ability of various ethnic groups to succeed in the US.

One possible cause of the higher performance of Asian Americans as a group is that they represent a small self-selected group of Asians, i.e. the relative difficulty of emigrating into the US selected out those with less resources, motivation or ability. Cultural factors are also thought to be part of the reason why Asian Americans are successful in the US. Asian societies themselves, in general, will often place more resources and emphasis on education. Great value is placed on work ethic and the pursuit of knowledge. This view of knowledge is evident in the modern lifestyle of many Asian American families, where the whole family puts emphasis on education and parents will make it their priority to push their children to study and achieve high marks; their children face extra pressure by parents to succeed in school and to achieve high-ranked jobs.

As a result, higher and unreasonable expectations are often associated with Asian Americans. The Model Minority stereotype is emotionally damaging to many Asian Americans, since there are unjustified expectations to live up to stereotypes of high achievement. Studies have shown that Asian Americans suffer from higher rates of stress, depression, mental illnesses, and suicide attempts in comparison to other races (http://www.hawaii.edu/hivandaids/Mental_Health_and_Depression_in_Asian_Americans.pdf). The pressures to achieve and live up to the model minority image have taken a tremendous mental and psychological toll on Asian Americans (http://www.cnn.com/2007/HEALTH/05/16/asian.suicides/).

According to the London Daily Times “Black Africans have emerged as the most highly educated members of British society, surpassing even the Chinese as the most academically successful ethnic minority.” And since the 1990′s the US Census have revealed that continental Africans have the highest educational rates in the U.S, Africans immigrants to the U.S. have continued to be the most highly educated group of people in the U.S (http://racerelations.about.com/od/diversitymatters/a/DoesAffirmativeActionAddressIntraRacialDivides.htm). More specifically, Nigerians have both the largest number of immigrants as well as the highest educational attainment and income statistics (http://www.census.gov/population/cen2000/stp-159/STP-159-nigeria.pdf). They have also been shown to be more educated than all other immigrant groups including Asian Americans that have long been held as the model minority. Their educated attainment rates surpass any native-born ethnic groups including White Americans and Asian Americans.

Hispanics are among what would be considered new immigrants. History shows that 1st, 2nd, and even 3rd generation immigrants and their ilk generally start with very little. They did, after all, come to America to seek a better life from where they came from. But with each successive generation, they make progress. They also tend to work harder because, again, they want to make a better life not only for themselves but especially their children. You can even make an argument that blacks are just like these new immigrants. Their rise in wealth and status in the American landscape only started after the Civil Rights movements of the 1960’s finally won them their equality. As an example of this effect, even the Pew Research Center’s article mentions that the arrival of new Asian immigrants since 2004 contributed significantly to the estimated decline in the overall wealth of their racial group.

It has been proven that education is one way to improving your economic and social standing. Accordingly, the US Census shows that foreign-born Asian, European, and African immigrants had a higher educational attainment in terms of having earned a four-year college degree than their native-born counterparts (http://en.wikipedia.org/wiki/Educational_attainment_in_the_United_States). The opposite is true among Hispanics, where the dramatically lower educational attainment of the foreign-born population decreased the educational attainment of the general Hispanophone populace, statistically. This large inequality might partially be explained thorough the influx of uneducated foreign-born Hispanic Americans who had not been offered the chance to complete secondary education in their home country and who had not completed secondary education in the United States. However, only among Hispanics and Latinos was the proportion of college graduates larger among the native born population (http://www.census.gov/prod/2004pubs/p20-550.pdf). This information appears to explain part of what the Pew Research Center’s saw relating to the net worth of Hispanics; a 42% rise in median levels of debt from this group was carried in the form of unsecured liabilities (credit card debt, education loans, etc.).

Phew. That was a lot of work you made me do and for that, I hate you. I didn’t have enough time to really organize this information properly into “formal” work as I was out on business over the weekend but I hope that you get my point. And what is my point, you ask? The primary reason I took the time off my busy schedule was because you were pissing me off (pardon my American). I am a first generation Asian-American married to a beautiful Korean woman.

You talk all this propagandist gibberish when if you get your head out of your arse and actually READ what you are quoting yourself and show even the smallest of efforts by digging around you’ll find yourself blushing at your outrageous claims and unfounded biases.

This now all leads us to my refutation of one of your main points of contention derived from your following statement: “I have not concocted imaginary figures about underachieving black and Hispanic Americans. These minorities do significantly dilute the American productivity, incomes and wealth. They are a living condemnation of the American system.” With your argument, ALL “Chinese-Chinese” would have to be doctors, lawyers, programmers, hedge fund managers, etc. Who, then, would be your waiters? Your garbage collectors? Janitors? Who would work the “undesirable,” low paying jobs?

The Latinos are also among what would be considered new immigrants. History shows that 1st-2nd generation immigrants tend to start low. They did, after all, come to America to seek a better life from where they came from (which, all intents and purposes, would be worse). But with each successive generation, they make progress. Immigrants make up the “soul” of America; they are among the primary reasons for why America has become, in many ways, great. I draw a correlation between immigration in America and the poor rural areas and migrant workers in China:

1. 99% of China’s poor live in or come from rural areas, according to national statistics, which count migrant workers in cities among the rural, not urban poor. Even if migrant workers are excluded from the rural population, 90% of poverty is still rural. [ Wall Street Journal “Facts About Poverty in China Challenge Conventional Wisdom” April 13, 2009 ]

2. Over half of China’s population lives in rural areas…but they share less than 12% of the country’s wealth. [ The Telegraph UK “China's wealth gap the widest since economic reforms began” March 2, 2010 ]

3. Levels of poverty are higher and more severe in China’s western regions, but nearly half of the poor are in other parts of the country. [ Wall Street Journal “Facts About Poverty in China Challenge Conventional Wisdom” April 13, 2009 ]

4. China’s poverty among ethnic minorities is two to three times higher than among the Han Chinese. [ Wall Street Journal “Facts About Poverty in China Challenge Conventional Wisdom” April 13, 2009 ]

Finally, I still do not understand why you are using “American” numbers for achieving your $100T? From my calculations with a starting per capita income of $7,600/year, to reach your mythical dollar amount would require an ASTOUNDING (approx.) 8.7% year-over-year increase leading up to year 2040. And that will only just allow you to match CURRENT “Asian-American” levels. Tying your numbers to GDP seems odd as well given that “…China’s average GDP Per Capita… [reached a] historical high of 1965.00 dollars in December of 2008. (http://www.tradingeconomics.com/china/gdp-per-capita)”

Also know this: Reports have shown that while China’s GDP has increased an average of 10% since 1978 (http://www.businesstoday-eg.com/case-studies/case-studies/china-overtakes-japan-as-the-second-largest-economy-in-the-world.html) the wealth has spread to just the elite few: “… the average salaries of Chinese civil servants and executives of government-owned companies are 6 times and 98 times the minimum wage, well above the average international levels of 2 times and 5 times respectively. (http://www.thechinaperspective.com/articles/chinaeconomicwa-9006/)”. This will also be a good read: the Chinese government plans to target only a (still staggering) 7% annual growth (http://news.xinhuanet.com/english2010/china/2011-03/05/c_13761973.htm).

Wall Street Ranter
December 12, 2011 at 10:45

Acronym for real estate in Canada, China & Australia is CaCA…….for obvious reasons…..

http://www.wallstreetrant.com/2011/12/real-estate-markets-in-canada-china-and.html

JUSTSAYNO
December 12, 2011 at 00:49

Have the China-doomsayer ever been right about China’s economy? Gordan Chang has predicted that China will be going through a hardlanding nearly a decade ago and he is still wrong. However his anti-China efforts has landed him a blog on WSJ. It’s easy for a “china expert” to predict doom and gloom because even when your predictions are wrong you will still retain your credibility. People are more attached to their ideology than the facts.

Take ideologies out of the way, if someone has been consistently wrong about something, why should anyone listen to him?

Observer
December 11, 2011 at 07:16

To the readers of the Diplomat:

Should we listen to the ccp’s mouthpieces or should we listen to one of the well know hedge fund managers?

He says china properties are about to bust – http://www.cnbc.com/id/45610526

One of the well know business publication, the Wall Street Journal, says this – http://online.wsj.com/article/SB10001424052702304906004576367121835831168.html

Milo Jones
December 11, 2011 at 06:26

For why the answer to this question matters to the entire world, see “China’s Present, the World’s Future, and the Pretense of Knowledge”. http://bit.ly/vSPuX8

Liang1a
December 10, 2011 at 00:35

len-nin wrote:
December 9, 2011 at 6:11 pm

Now that sounds like a consumption lead economy; not export based economy.
————————————-

If you mean that the Chinese economy in being led by the buidling of hundreds of millions of affordable housings is a consumption led economy, then yes. My point is that China cannot continue to grow by being based on exports. It can only continue to grow by developing its domestic economy by providing the Chinese people with the things they need and want such as housings, education, medical services, etc. And this is obviously a consumption economy. Or more precisely, a domestic consumption economy.

len-nin
December 9, 2011 at 18:11

Now that sounds like a consumption lead economy; not export based economy.

Liang1a
December 9, 2011 at 16:02

Wow wrote:

December 9, 2011 at 3:20 am

You seem to have a fascination for this mythical $100T amount. But at least your argument this time has more merit than your ridiculous correlation against US income (that you conveniently diluted down by mentioning the “underachievers”).
————————————————

I have good data on which to support my argument. If you look at the figures given below you will see that the blacks and the Hisponics are much poorer than the whites in America. And the incomes and wealth of the Asians are significantly higher than even the whites. Notice that the incomes of the Asians are $64,300. The incomes of the Chinese-Americans are even higher than the Asian-American incomes. Therefore to use the figure of $66,000 for Chinese-American incomes is actually conservative. The argument is very sound that Chinese in China can make the same per capita GNP as the Chinese-Americans can make in the US. Therefore, for the Chinese in China to make $66,000 per capita GNP and $100 trillion total GNP based on a population of 1.5 billion is very compelling. (Per household median income is the same as the per capita GDP as it happens to be.)

Also notice that the wealth of the blacks is only 1/20 of the whites in America. I have not concocted imaginary figures about underachieving black and Hispanic Americans. These minorities do significantly dilute the American productivity, incomes and wealth. They are a living condemnation of the American system. They belie the sanctimonious claims of equality and democracy in America. While China should become more democratic, America has no moral authority to condemn China before it can redress the racial inequality in America.

=============================

http://www.pewsocialtrends.org/2011/07/26/wealth-gaps-rise-to-record-highs-between-whites-blacks-hispanics/

The median wealth of white households is 20 times that of black households and 18 times that of Hispanic households, according to a Pew Research Center analysis of newly available government data from 2009.

As a result of these declines, the typical black household had just $5,677 in wealth (assets minus debts) in 2009; the typical Hispanic household had $6,325 in wealth; and the typical white household had $113,149.

—————————

http://www.usatoday.com/news/nation/story/2011-09-13/census-household-income/50383882/1

Asian: $64,300
White: $54,620
Average: $49,445
Black: $37,759
Hispanic: $32,068

First Advisor
December 9, 2011 at 03:29

The writer should have spent far more column inches on the subject of the introduced property tax, editing the previous material to do so if necessary. The new property tax in China is more important than all those other factors. For instance, if the writer had taken just one paragraph to describe the potential revenues to local governments from the recent property tax, in yuan and dollars, no one commenting on this article would be discussing any other subject. The income from any property tax is staggering, astronomical sums of money for any government. The writer of the article should have said that, rather than forcing a reader to do so.

Wow
December 9, 2011 at 03:20

You seem to have a fascination for this mythical $100T amount. But at least your argument this time has more merit than your ridiculous correlation against US income (that you conveniently diluted down by mentioning the “underachievers”).

Liang1a
December 8, 2011 at 23:01

The two biggest revenue generators of China are exports and real estates. And neither of them benefits the Chinese people in general. The more exports increases the more energy and resources are squandered to ship products out of the country for useless and needless forex reserves. China’s exports also relies on cheap labor which in order to be sustainable must keep the Chinese labor cheap. And cheap labor means the workers’ wages must be low which in turn means the people must be kept poor.

Real estate only increases the property values which leads to speculation and housing bubble. And as the real estate prices increase the people who need housings can no longer afford them. Therefore, China’s economy is based on two things that will keep the people poor while inflating the housings out of their reach. This will inevitably lead to social unrest.

Therefore, the Chinese government must immediately shift the economic policies from exports to domestic development. At the same time the Chinese government must persistently lower the housing prices. To do this, it must build more affordable housings. Actually the Chinese government is planning to vastly increase the number of affordable housings to be built within the next 5 years. The number of affordable housings to be built over the next 5 years has been set at 36 millions with 10 million units to be started by Dec. 1, 2100. The last report is that all 10 million housing units have been started as of Dec. 1, 2011.

The building of affordable housing will provide millions, if not tens of millions of jobs for construction workers. At the same time the number of workers that produce building materials, raw materials, etc. will also increase. The number of workers in other sectors will also increase such as transportation workers, mine workers, etc. will also increase. As the number of workers increases in these sectors they also increase spending which will lead to more demand requiring more production which in turn leads to more jobs. This is what is called the multiplier effect where creating one job leads to the creation of more jobs.

As the number of jobs created and multiplied by the construction industry building affordable housings increases it will make up for any decrease of jobs in the export sector. In fact, the government should then implement policies to deliberately decrease the exports so that more energy and raw materials can be allocated to the domestic sector such as the building industry for affordable housing. This will then accomplish two tasks at once. First it decreases exports and second it expands the domestic economy. The workers in the domestic sectors can use the most efficient tools and machines to increase their productivity which in turn will make them deserving of higher incomes. And higher incomes will lead to greater purchasing power to stimulate more demand to creat more jobs. And the cycle will spiral upward to make China develop faster bringing ever higher wages and greater purchasing power until China is fully developed in some 30 years. At that time China’s per capita GNP will be some 200,000 yuan. With a population of 1.5 billion China’s total GNP will be some 300 trillion yuan. On an exchange rate of 3 yuan per dollar this will be some $100 trillion thus making China richer than all the rest of the world combined by some 50% or more.

Yang zi
December 8, 2011 at 16:32

Bubbles are natural phenomenon in a market economy. Bubbles are good too. The bursting is painful but the formation process creates a lot of wealth.

China is no exception to bubbles, but China could manage bubbles. That is to limit the extent of a bubble and control it’s bursting process, at the same time stimulate another bubble in a different sector. These engineered bubbles are like ocean waves on the beach, one after another, pushing the economy forward. If China can pull this off, it will be the real Beijing Model.

I believe I am the first one to mention this economic pattern, this pattern consists of emgineered bubbles and managed burst. A bublicious economy can be created with a continous well designed bubbles. Instead of geting destroyed by the cycle, you ride it

so I will be waiting for a Nobel prize coming my way:) @Reason, you are the witness :)

Sing
December 8, 2011 at 14:33

One thing for sure the local government officials have less corruption money to go to Macau for gambling. At another thoughts : MAY BE NOT!

Logic and Reason
December 8, 2011 at 12:35

The laws of economics apply to China just like they apply to any other country. China’s real estate bubble has been caused by the Chinese government’s protectionalist policies of currency devaluation and also the restriction of captial investment into other countries. You cannot cheat the market but for so long.

Reason
December 8, 2011 at 12:29

@Frankie

As far as I’m aware, everything exists in cycles. I am struggling to think of anything that doesn’t have a rising and falling cycle

Are you suggesting that some how the Chinese economy is the first thing ever to escape cyclical existence??

(Other than a Buddha, but that’s not really relevant for the Diplomat site)

Frankie Fook-lun Leung
December 8, 2011 at 08:26

You cannot compare China to USA. China is not a capitalistic economy and the history of real estate investment has not gone through cycles like the US. It is doubtful that China not being a capitalistic economy, whether there are cycles. Keep an eye on what’s going on and read between the lines. Nobody knows how the chinese economy works or does not work. Like Deng Xiao-ping said: touching the stones when you are crossing the stream.

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