Understanding China, One Blog at a Time

An American in China

China’s Looming Disaster

Posted by w_thames_the_d on February 15, 2011

I remember being shocked when I first moved to China, construction was going on everywhere, but it was as if they were building with no other end, than to build. My friend commented that he had been in this one city, Lang Fang , for years and had seen one particular property demolished two times and rebuilt. It never was occupied.
The reason is that in China, growth is seen as good and the provincial leaders are promoted on growth. Building facilities increases GDP and thus looks good, although people will never occupy the facilities. Chinese can get loans for such things and thus in quirky Chinese math, they are not accountable for the loans, only the output. The loans will later be written off.
With the occurrence of this, we can see how China’s housing and construction bubbles are ripe for bursting. I would check my portfolio for Chinese stocks. and think about reducing them within the next few years.

“The government has built 30 billion square feet of office space for 1 billion people, with enough supply to provide the equivalent of a 5 x 5 private office for every man woman and child, said Jim Chanos. The building continues with another 200 million square meters planned for this year, according to Mark Hart of Corriente Advisors. Pivot Capital notes that China has built nearly the same number of roads as the United States, despite roughly 1/10 the number of cars, the same number of bridges but 1/7th the number of rivers. They built a city for 1 million people, which is abandoned, and constructed the largest mall in the world, which is 95% unoccupied. The investment in fixed capital has exceeds 50% of GDP, above levels seen prior to the Japanese peak in the late 80s, and the Asian Tigers in the mid 90s, and subsequent crises. The result is a disproportionate number of single males who have migrated to the cities to seek an inflated numbers of construction jobs. Meanwhile, an estimated million college graduates are homeless on the city outskirts, caught in a government web that needs to keep the construction industry humming to avoid social unrest.

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