Who is right about China?

Here is one bit from a very good FT piece, “The caustic soda connection,” by Merryn Somerset Webb:

Huge credit growth and some whopping pumping up of the property bubble. By 2011 residential real estate made up nearly 10 per cent of GDP, 14 per cent of the workforce was in construction and China was using up more cement per capita than even Spain at the peak of its construction bubble. Prices were soaring: global investment management firm GMO’s Edward Chancellor points to a 2010 NBER study that showed house prices up 140 per cent in three years in the biggest Chinese cities. Everyone with any cash or any way of getting any cash owned houses: even on official estimates 18 per cent of households in Beijing owned two or more properties and 40 per cent of flats in the major cities were being bought not for use but for investment. They were often left vacant. Overall numbers from Eclectica Asset Management suggest that China has spent twice as much as the US on its property bubble, relative to the size of its economy. Not bad, given what has happened in the US since.

The boom has infected the entire economy. Chancellor reckons that around 35 per cent of bank loans are “directly or indirectly related to Chinese property”. Local governments have also taken out huge loans backed by land grants to finance their increasingly extreme-looking infrastructure projects, while on some estimates a good 50 per cent of China’s GDP is linked to the property market one way or another. That makes it pretty much the biggest emerging market property bubble ever.

From The Economist, here is a much more optimistic view.

Having just been in Beijing, I would say that a visit here probably will not change the views of most people, I mean even more than is usually the case,.  Virtually everyone agrees there is a real estate bubble and considerable excess capacity in China.  (In contrast, I see factual disagreement about how serious underlying provincial and trust-based debt problems are.)  The question is what you think that means, given that the Chinese government, unlike say the ECB, will pull out all stops to try to keep things on track.  Check back with me in a year or two…


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