Chinese bubble about to burst?

The Chinese market fell sharply today, the second time in three sessions, as China tries to slow down its economy:

Chinese stocks suffered sharp declines Tuesday, with property developers tumbling on further tightening measures that target the sector, while coal and metal shares fell on concerns about price curbs.

Chinese property stocks fell sharply after Beijing on Monday announced new limits on the ability of foreigners to buy residential or commercial property.

Chinese refining, coal and metal stocks stumbled after the China Securities Journal, citing unnamed sources, reported that the country might unveil a set of measures in the near term to control rising prices.

China is in the midst of a huge bubble, quite possibly the largest bubble ever anywhere. There have been numerous reports of entire cities built in China that now sit empty. See here, here, and here for example. There are reportedly 64 million empty apartments in China.

China is now in the process of deflating its bubble. It hopes to prick the bubble without suffering an economic collapse. But this is unlikely to occur. Despite all the building and growth, China is still a poor country. The vast majority live in poverty and the middle class is much poorer than the American middle class. Despite its relatively lack of wealth and, correspondingly, capital, China has spent hundreds of billions on wasteful projects that now sit idle. [How much money was spent building 64 million apartments that now sit idle?] The US housing bubble pales in comparison, yet the US economy is three times the size and is better able to survive such waste.

When the Chinese bubble bursts, it will take down much of the world with it. With Ireland, Greece, Portugal, and Spain already on edge and the US suffering from a weak economy, huge deficits, and growing debt, the world economy can hardly afford another burst bubble at this point. But what are the options? Prolonging the bubble only makes the pain worse when it does burst. Better to take our medicine now and return to reality as soon as possible.

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One response to “Chinese bubble about to burst?

  1. Pingback: Government obsession with trains doesn’t work in China or the United States « The Path to Tyranny Blog

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