Friday, April 09, 2010

China's Real Estate Bubble

I'd say China's growth is unsustainable. There are indications.
The popping of China's current housing bubble -- considered inevitable by regional experts such as Andy Xie -- could have widespread consequences. If housing turns down in China, China's growth could slow or even decline. And since the entire world is looking to China to lead global growth, then that could spell major trouble for the "global economy is recovering" story.

The reflation of China's real estate bubble has a number of causes, and the most obvious one is that nation's stupendous $586 billion stimulus, which was packaged with efforts to promote real estate lending and development to boost growth. According to China's central bank, new home mortgages in the first nine months were quadruple the amount borrowed a year earlier.

In terms of GDP -- China's GDP is $3.3 trillion compared to $13.8 trillion for the U.S .-- China's $586 billion stimulus is three times as large as America's $787 billion stimulus. China's stimulus spending is a heart-pounding 17.8% of their GDP, as opposed to America's comparatively modest 5.7% of GDP.
I can't see this turning out well. Of course China has large reserves of other country's currencies. And if they spend it all? Then what?

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