5 ms·

What if the Chinese property bubble goes nuclear?

34 points by tokenadult 12y ago

dm2 12y ago
Aren't there a lot of people living in really bad conditions in China? Why does the Chinese government not allow these people to move into these empty buildings? Wouldn't any rent being paid be better than the buildings sitting there earning nothing? It could be done with a lottery or with very clever analysis of who would be best suited for these buildings. (need teachers, butchers, shop keepers/merchants, police, fire-fighters, etc., in the appropriate amounts) The buildings just sitting there seems like the worst option, doesn't it? I'm probably very ignorant on the economics of this type of thing but I would be very interested in learning. Does anyone know of a detailed explanation of why these buildings aren't being populated? There are several Eiffel Tower replicas all over the world, 3 in China, 1 of them is full-scale: http://en.wikipedia.org/wiki/List_of_Eiffel_Tower_replicas http://en.wikipedia.org/wiki/List_of_Eiffel_Tower_replicas
- akanet 12y ago
  A low rental price on a high-end condo would immediately devalue the condo and any surrounding units - which is worse to the property development people than no rental income at all. They live by essentially propagating high prices for development.
  - dm2 12y ago
    By "property development people" do you mean the hired construction companies or the Chinese government? Doesn't the Chinese government own these cities and buildings?
    - hangonhn 12y ago
      "Doesn't the Chinese government own these cities and buildings?" No. There is private property in China, even if the laws for it isn't as strongly protected as in other countries.
      - dm2 12y ago
        So when do the investors of these properties expect these buildings to start generating income? Who are these wealthy investors? Couldn't the money be better invested in thousands of ways? Sorry if these questions are dumb, I'm just really interested in this and can't wrap my head around it.
        anatari 12y ago
        1. When they decide to sell the property 2. Just like in the U.S., mostly normal "middle class" people with the help of banks 3. In the past decade, not really, real estate has been less volatile and outperformed the Shanghai stock market as an example.
        seanmcdirmid 12y ago
        Only because the shanghai stock exchange is mostly insider trading and at least in the property market, you might win without that much guanxi.
        deleted 12y ago
        [deleted]
        hangonhn 12y ago
        These questions aren't dumb. In fact, they stem from a sense of how things should work and asking them lead to exploration to why things aren't as we expected. That's how interesting and awesome things are discovered. I don't have all the answers as this issue is very complex. I try to answer parts of it based on what I know (from travels in China and reading articles about China). First, there really aren't that many ways to invest your money in China. The equity market there is quite nascent and rocky. Fraud happens quite a bit more than the US and there simply aren't that many choices. The finance industry in China is underdeveloped and heavily regulated. The other issue is that a lot of the money was borrowed from state owned banks when lending was cheap and there was a lot less accountability. Lastly, China runs a pretty big trade surplus. So basically the conditions lead to a situation where China was or still is awash in capital and very few places to invest. Real estate really isn't that bad of a choice. China moved 500 million people out of poverty and into the middle class in the last couple of decades. Those people will want places to live. In the long term, real estate in China isn't a bad bet but all that wealth China created need to trickle down to people and get spread among the larger population so they can afford to live in these new places. Just as a general observation, China's development is very uneven. They are good at what they've focused on but lacking systematically (for example, great highways and roads but no one really enforcing traffic laws so people drive the wrong way all the time). They lack larger systems that make everything work together. Those things can't just happen overnight like China's manufacturing industry did. It will take time for them to realize the problems and find solutions to them.
- ajmurmann 12y ago
  I also never understand why it's seen as so important that real estate prices go up. Statements like "Chinese-based parents who are funding their children's purchases are helping the Irish property recovery." from the article always baffle me. Isn't it great if real estate is cheap? It means people can afford to live there and spend there money on other things and keep the economy going that way. I certainly prefer that over what's going on in SF. I understand that often times people will take out mortgages against there houses if the price goes up and that way money goes back into the economy. But in my opinion that's not real money and will only lead to another 2008.
  - dm2 12y ago
    That's what I'm thinking, even if the property and surrounding properties are devalued now at least they would be creating an economy in the city. They could always raise the prices later. I just don't understand how empty could ever be better unless the cost of maintaining a lived in building was higher than a non-lived in building.. Then again, I see the same thing here in the US. Companies like Cisco buy huge office buildings and leave them empty for years. I suppose it's because building prices are cheap now. I always thought it was because there was a movement for workers to work from home more.
  - marincounty 12y ago
    The rent in San Francisco and Marin County is going up too fast. I hate to say this on this board, but I'll be glad when the tech bubble bursts. I have some friends in San Francisco and I'm so glad they are protected by rent control. Marin County only has rent control in San Anselmo. If you live in San Anselmo and you live in a detached "Mother in-law" unit you have rent control. As to Landlords, who consistently raise rents to whatever the market bares--don't complain when your Tenants really don't give a dam about your property, or you? Your tenants know the difference between gouging, and reasonable rent increases. Being a Landlord is a little different than making money in the stock market. That person who has carved out a litte life in your community, and home--sometimes as to pass you in the Hallway in order to get to the bathroom? "But, I'm just doing what Everyone else is doing?" Sometimes--relationships are more important than maximizing capital, maybe that's how the term mother in-law unit came to fruition? "Hell, throw her out--I hear it's cheap to live in Chicago? By Mom!" I just don't get it I guess?
- deleted 12y ago
  [deleted]
- SoftwareMaven 12y ago
  I have a feeling the problem is jobs. What are the industrial jobs that will form the community's foundation? No jobs means nobody wants to move there.
  - politician 12y ago
    Perhaps, but I think the problem actually might be "new wealth doesn't know how to invest". In other words, people who've come into the cities, earned some money, and now are wondering what to do with it.
- mimighost 12y ago
  Those buildings are not populated for several reasons: 1.Sits in the suburb area where the public transit is very poor. 2.Lacks basic public facilities like schools and hospitals. Basically, those ghost cities are the outcomes driven by the local government's insatiate desires to sell more lands to real estate developers, the revenue from which has become a critical part of its total income.
- starky 12y ago
  Not really a detailed explanation but when I was there a few months ago the guy I was with said that a lot of them were sitting around unfinished because they didn't have any buyers. A lot of them are so called luxury buildings where I'm sure the developers don't want people who can't afford that type of life living, they were pointing out buildings where apartments were 1.5M RMB ($250k) which given the wages in China is just a bit ridiculous. The factory I was visiting was constantly complaining about how nobody wanted to work in the south of China anymore and that all the workers had moved up to Shanghai, yet there was all this construction and plans for huge growth in the area. I just couldn't figure out how they were justifying these plans.
- crdoconnor 12y ago
  >Why does the Chinese government not allow these people to move into these empty buildings? For the same reason why the American government doesn't let people move into the large number of empty high end luxury apartments in downtown Manhattan. They all belong to somebody.
est 12y ago
South China Mall is still empty? Should take an online street view research before bad journalism.
- waps 12y ago
  http://www.thenanfang.com/blog/tag/south-china-mall/ http://www.thenanfang.com/blog/tag/south-china-mall/ TLDR: Not empty anymore, but they must be making a hell of a lot less than planned, and have taken a huge hit to their projected profitability doing this. I'm sure they reflected this in their stock price and GDP projections, right ?
geetee 12y ago
Vice on HBO did a good segment on this. Definitely worth checking out if you have access. A little extra bit here: https://www.youtube.com/watch?v=qPjGWcM3Awc https://www.youtube.com/watch?v=qPjGWcM3Awc
- melvinng 12y ago
  TL;DR: if it goes boom.. the world will just move on as usual and we just get back up.. just like the US market.. except China wasn't as hyped up and the media is still control by the government so it won't be as bad as the US.
NicoJuicy 12y ago
In China, you need to know people to get a loan. Once they have loans, the bank isnt following up. People take a loan, invest 25% in a crappy building. Take 75% and the bank takes the useless property when they dont receive the money... So yeah, a lot of bad / empty buildings in China..
hackaflocka 12y ago
"With deflation raising its head in Europe many economists believe that a devaluation of the Chinese currency will hit Europe like an economic broadside – in particular the economies with the most debt (ahem) whose repayment requirements will grow substantially under continued deflation." I'm pretty good at macro-economics, but I couldn't understand this sentence. Perhaps it's just a mainstream media attempt to confuse the reader into thinking he/she doesn't really know economics. But if you think you have a handle on what this sentence means, I would welcome your interpretation. Hit reply below and fire away.
- danmaz74 12y ago
  Inflation is good for debtors, because as the value of the currency shrinks, so does the value of your debt, that becomes easier to repay in real term - with inflation, salaries grow nominally, tax revenue grow nominally etc. With deflation, the opposite happens.
  - hackaflocka 12y ago
    Excellent explanation. Thanks.
- popsc 12y ago
  I concur w/ danmaz74’s statement. But what is the cause and effect relationship of “devaluation of the Chinese currency will hit Europe like an economic broadside “ . Is it less Chinese purchases of European goods?
wodenokoto 12y ago
Are there any good books that looks into this problem and how it came about?
narrator 12y ago
China can make all the bad investments they want. Unlike any other western country, the government prints their own money debt free and can thus just bail out all the bad loans forever. The boom bust cycle is just an aspect of fractional reserve / debt as money banking. In China the banks operate like partially privatized central planning and are closely directed by the government. There is such extreme cognitive dissonance about this in the western financial press. They just don't get why China doesn't bust. Check out the history of Chinese bail outs and bad loans. It's really quite interesting. Loans and funds and banks and all that fail all the time in China and the government just prints up some money and bails them out if they're politically important. Goof ball investment schemes which are the Chinese equivalent of LTCM fail all the time and everybody loses their money and nobody bats an eye in China, but it doesn't bring the system down.
- DavidSJ 12y ago
  So, is that system a time bomb for China (and the rest of the world), when one day a financially critical entity doesn't have the right political influence and goes belly up, bringing the house of cards down? Or, is there some reason to think this can go on forever and the political system will keep bailing everyone out?
  - joe_the_user 12y ago
    I think the parent would argue that if the state chose not to support a given entity, it would simply support all the others and so financial collapse could still be averted. Edit: and the state can do that because it's a dictatorship quite willing to print its own money (though the US sadly little different today). The point here isn't that collapse is inevitable but that if you postpone collapse forever, you'll pay a worse price in price distortion than you'd pay if you let the system collapse. Perhaps the people in the slums will riot because they're tired of watching the empty ghost cities rot. But given the imbalance here, that possibility might be present universally.
    - vorg 12y ago
      > Perhaps the people in the slums will riot because they're tired of watching the empty ghost cities rot Despite the recent price inflation of luxury goods, the cost of rice and noodles has remained constant. Workers can still eat for 12rmb (us$2) a day, or 20 if they want vegetables and some pork. The water and power supplies are still reliable, and the governments in China are investing in infrastructure to keep them so. Construction and its flow on industries is what's keeping a large chunk of Chinese workers employed. Whereas there's problems with the luxury property market and other high end industries, the Chinese are carefully watching their social bottom line, such as ensuring cheap food and water for workers. There's still a long way to go in health care, education, and clean air though.
fourstar 12y ago
VICE did it. Better. http://www.youtube.com/watch?v=qPjGWcM3Awc http://www.youtube.com/watch?v=qPjGWcM3Awc
DominikR 12y ago
My guess would be that nothing serious would happen, because China has a government that can effectively implement whatever policy they want without caring too much about public opinion and they still have all the production facilities and cheap workforce, which wont suddenly go away because of a housing bubble. What destroyed the US industries (apart from high tech) wasn't the housing bubble or the oil prices. It was the high price for labor. Also, the reason why the housing bubble in the US caused so much trouble is that the US imports more than it exports. We have the exact opposite situation in China, where far more products are exported than imported, so destruction of wealth in China isn't going to hit their economy nearly as much as it did hurt the US/EU. Labor prices might even go down as a result, which will make them even more competitive.
- crdoconnor 12y ago
  >What destroyed the US industries (apart from high tech) wasn't the housing bubble or the oil prices. It was the high price for labor. No, it was the high price of the dollar.
  - DominikR 12y ago
    You do realize that it doesn't matter for an importer of US goods if the high prices for US products are a result of high labor price or high dollar price. The importer just sees that the same product produced in the US is far more expensive than somewhere else.
    - crdoconnor 12y ago
      >You do realize that it doesn't matter for an importer of US goods if the high prices for US products are a result of high labor price or high dollar price. No. I never said it did matter to them. It DOESN'T matter to them. It matters to us!!! The US already has way too much downward pressure on wages - causing MASSIVE income inequality, huge private debt overhang and anemic demand. More downward pressure will simply cause half the country to drop into poverty. What it DOESN'T have is enough downward pressure on the dollar - causing exports to become more competitive and industry to start coming back, bringing jobs with them.
tokenadult 12y ago
I am amazed that so few of the comments even mention that the source of the submitted article is a newspaper in Ireland, where all the same arguments about 1) governments always being able to bail themselves out and 2) excessive investment in buildings that no one can afford to occupy being a good idea are a recent and painful memory. Ireland is still a long way from recovering from its real estate bubble, as are Spain and many parts of the United States. Commentary that suggests that China is somehow different and special and exempt from general economic principles should refer to more real-world historical examples.
- crdoconnor 12y ago
  Ireland was prevented from enacting any kind of stimulus by the ECB. In fact, it was told in no uncertain terms to do the complete opposite - bail out the banks and enact austerity at the exact time when she had plunging demand. This caused spiraling GDP contraction. Ireland dutifully obeyed, because the ECB controls her money supply and so holds a metaphorical loaded gun to her head. The ECB cannot order China to implement self destructive austerity, however. China is still sovereign in her own currency. In principle Ireland could bail herself out too, but it would involve leaving the Euro, defaulting and a spectacular political showdown that she really doesn't have the heart for.
  - waps 12y ago
    You know, I doubt that's the case. Greece and Cyprus have crossed the EU, lied to them, and committed acts that should have meant getting kicked out of the EU. Nothing happened. If anything the EU keeps giving them more money. So now everybody knows : clearly the EU is more interested in expanding their membership and maintaining power than it is interested in financial sense and applying treaties. So while Ireland certainly seems to think the EU has a gun to their heads, this is only true if Ireland's parliament cooperates. Ireland's parliament could simply order it's banks to print Euros, lie to the ECB (they're already doing that, after all. That's what the Euro crisis was about). Ireland's parliament could simply vote to do that, and while they're at it, vote a law that this does not violate the European treaty. Then it'd be up to Brussels to kick them out, and they've already shown that they won't do that, no matter what. They're sovereign, there's a million ways they could do this. So in short : you're right, in theory. In practice, the law is simply what parliament votes to be law, and they could shortcut your reasoning at any point. Given what's already happened in the PIGS, I think they will at some point in the not-too-distant future show us that theory and practice are very different indeed.

34 points by tokenadult 12y ago

dm2 12y ago

Aren't there a lot of people living in really bad conditions in China? Why does the Chinese government not allow these people to move into these empty buildings? Wouldn't any rent being paid be better than the buildings sitting there earning nothing? It could be done with a lottery or with very clever analysis of who would be best suited for these buildings. (need teachers, butchers, shop keepers/merchants, police, fire-fighters, etc., in the appropriate amounts) The buildings just sitting there seems like the worst option, doesn't it? I'm probably very ignorant on the economics of this type of thing but I would be very interested in learning. Does anyone know of a detailed explanation of why these buildings aren't being populated? There are several Eiffel Tower replicas all over the world, 3 in China, 1 of them is full-scale: http://en.wikipedia.org/wiki/List_of_Eiffel_Tower_replicas http://en.wikipedia.org/wiki/List_of_Eiffel_Tower_replicas

akanet 12y ago
A low rental price on a high-end condo would immediately devalue the condo and any surrounding units - which is worse to the property development people than no rental income at all. They live by essentially propagating high prices for development.
- dm2 12y ago
  By "property development people" do you mean the hired construction companies or the Chinese government? Doesn't the Chinese government own these cities and buildings?
  - hangonhn 12y ago
    "Doesn't the Chinese government own these cities and buildings?" No. There is private property in China, even if the laws for it isn't as strongly protected as in other countries.
    - dm2 12y ago
      So when do the investors of these properties expect these buildings to start generating income? Who are these wealthy investors? Couldn't the money be better invested in thousands of ways? Sorry if these questions are dumb, I'm just really interested in this and can't wrap my head around it.
      - anatari 12y ago
        1. When they decide to sell the property 2. Just like in the U.S., mostly normal "middle class" people with the help of banks 3. In the past decade, not really, real estate has been less volatile and outperformed the Shanghai stock market as an example.
        seanmcdirmid 12y ago
        Only because the shanghai stock exchange is mostly insider trading and at least in the property market, you might win without that much guanxi.
      - deleted 12y ago
        [deleted]
      - hangonhn 12y ago
        These questions aren't dumb. In fact, they stem from a sense of how things should work and asking them lead to exploration to why things aren't as we expected. That's how interesting and awesome things are discovered. I don't have all the answers as this issue is very complex. I try to answer parts of it based on what I know (from travels in China and reading articles about China). First, there really aren't that many ways to invest your money in China. The equity market there is quite nascent and rocky. Fraud happens quite a bit more than the US and there simply aren't that many choices. The finance industry in China is underdeveloped and heavily regulated. The other issue is that a lot of the money was borrowed from state owned banks when lending was cheap and there was a lot less accountability. Lastly, China runs a pretty big trade surplus. So basically the conditions lead to a situation where China was or still is awash in capital and very few places to invest. Real estate really isn't that bad of a choice. China moved 500 million people out of poverty and into the middle class in the last couple of decades. Those people will want places to live. In the long term, real estate in China isn't a bad bet but all that wealth China created need to trickle down to people and get spread among the larger population so they can afford to live in these new places. Just as a general observation, China's development is very uneven. They are good at what they've focused on but lacking systematically (for example, great highways and roads but no one really enforcing traffic laws so people drive the wrong way all the time). They lack larger systems that make everything work together. Those things can't just happen overnight like China's manufacturing industry did. It will take time for them to realize the problems and find solutions to them.
ajmurmann 12y ago
I also never understand why it's seen as so important that real estate prices go up. Statements like "Chinese-based parents who are funding their children's purchases are helping the Irish property recovery." from the article always baffle me. Isn't it great if real estate is cheap? It means people can afford to live there and spend there money on other things and keep the economy going that way. I certainly prefer that over what's going on in SF. I understand that often times people will take out mortgages against there houses if the price goes up and that way money goes back into the economy. But in my opinion that's not real money and will only lead to another 2008.
- dm2 12y ago
  That's what I'm thinking, even if the property and surrounding properties are devalued now at least they would be creating an economy in the city. They could always raise the prices later. I just don't understand how empty could ever be better unless the cost of maintaining a lived in building was higher than a non-lived in building.. Then again, I see the same thing here in the US. Companies like Cisco buy huge office buildings and leave them empty for years. I suppose it's because building prices are cheap now. I always thought it was because there was a movement for workers to work from home more.
- marincounty 12y ago
  The rent in San Francisco and Marin County is going up too fast. I hate to say this on this board, but I'll be glad when the tech bubble bursts. I have some friends in San Francisco and I'm so glad they are protected by rent control. Marin County only has rent control in San Anselmo. If you live in San Anselmo and you live in a detached "Mother in-law" unit you have rent control. As to Landlords, who consistently raise rents to whatever the market bares--don't complain when your Tenants really don't give a dam about your property, or you? Your tenants know the difference between gouging, and reasonable rent increases. Being a Landlord is a little different than making money in the stock market. That person who has carved out a litte life in your community, and home--sometimes as to pass you in the Hallway in order to get to the bathroom? "But, I'm just doing what Everyone else is doing?" Sometimes--relationships are more important than maximizing capital, maybe that's how the term mother in-law unit came to fruition? "Hell, throw her out--I hear it's cheap to live in Chicago? By Mom!" I just don't get it I guess?
deleted 12y ago
[deleted]
SoftwareMaven 12y ago
I have a feeling the problem is jobs. What are the industrial jobs that will form the community's foundation? No jobs means nobody wants to move there.
- politician 12y ago
  Perhaps, but I think the problem actually might be "new wealth doesn't know how to invest". In other words, people who've come into the cities, earned some money, and now are wondering what to do with it.
mimighost 12y ago
Those buildings are not populated for several reasons: 1.Sits in the suburb area where the public transit is very poor. 2.Lacks basic public facilities like schools and hospitals. Basically, those ghost cities are the outcomes driven by the local government's insatiate desires to sell more lands to real estate developers, the revenue from which has become a critical part of its total income.
starky 12y ago
Not really a detailed explanation but when I was there a few months ago the guy I was with said that a lot of them were sitting around unfinished because they didn't have any buyers. A lot of them are so called luxury buildings where I'm sure the developers don't want people who can't afford that type of life living, they were pointing out buildings where apartments were 1.5M RMB ($250k) which given the wages in China is just a bit ridiculous. The factory I was visiting was constantly complaining about how nobody wanted to work in the south of China anymore and that all the workers had moved up to Shanghai, yet there was all this construction and plans for huge growth in the area. I just couldn't figure out how they were justifying these plans.
crdoconnor 12y ago
>Why does the Chinese government not allow these people to move into these empty buildings? For the same reason why the American government doesn't let people move into the large number of empty high end luxury apartments in downtown Manhattan. They all belong to somebody.

est 12y ago

South China Mall is still empty? Should take an online street view research before bad journalism.

waps 12y ago
http://www.thenanfang.com/blog/tag/south-china-mall/ http://www.thenanfang.com/blog/tag/south-china-mall/ TLDR: Not empty anymore, but they must be making a hell of a lot less than planned, and have taken a huge hit to their projected profitability doing this. I'm sure they reflected this in their stock price and GDP projections, right ?

geetee 12y ago

Vice on HBO did a good segment on this. Definitely worth checking out if you have access. A little extra bit here: https://www.youtube.com/watch?v=qPjGWcM3Awc https://www.youtube.com/watch?v=qPjGWcM3Awc

melvinng 12y ago
TL;DR: if it goes boom.. the world will just move on as usual and we just get back up.. just like the US market.. except China wasn't as hyped up and the media is still control by the government so it won't be as bad as the US.

NicoJuicy 12y ago

In China, you need to know people to get a loan. Once they have loans, the bank isnt following up. People take a loan, invest 25% in a crappy building. Take 75% and the bank takes the useless property when they dont receive the money... So yeah, a lot of bad / empty buildings in China..

hackaflocka 12y ago

"With deflation raising its head in Europe many economists believe that a devaluation of the Chinese currency will hit Europe like an economic broadside – in particular the economies with the most debt (ahem) whose repayment requirements will grow substantially under continued deflation." I'm pretty good at macro-economics, but I couldn't understand this sentence. Perhaps it's just a mainstream media attempt to confuse the reader into thinking he/she doesn't really know economics. But if you think you have a handle on what this sentence means, I would welcome your interpretation. Hit reply below and fire away.

danmaz74 12y ago
Inflation is good for debtors, because as the value of the currency shrinks, so does the value of your debt, that becomes easier to repay in real term - with inflation, salaries grow nominally, tax revenue grow nominally etc. With deflation, the opposite happens.
- hackaflocka 12y ago
  Excellent explanation. Thanks.
popsc 12y ago
I concur w/ danmaz74’s statement. But what is the cause and effect relationship of “devaluation of the Chinese currency will hit Europe like an economic broadside “ . Is it less Chinese purchases of European goods?

wodenokoto 12y ago

Are there any good books that looks into this problem and how it came about?

narrator 12y ago

China can make all the bad investments they want. Unlike any other western country, the government prints their own money debt free and can thus just bail out all the bad loans forever. The boom bust cycle is just an aspect of fractional reserve / debt as money banking. In China the banks operate like partially privatized central planning and are closely directed by the government. There is such extreme cognitive dissonance about this in the western financial press. They just don't get why China doesn't bust. Check out the history of Chinese bail outs and bad loans. It's really quite interesting. Loans and funds and banks and all that fail all the time in China and the government just prints up some money and bails them out if they're politically important. Goof ball investment schemes which are the Chinese equivalent of LTCM fail all the time and everybody loses their money and nobody bats an eye in China, but it doesn't bring the system down.

DavidSJ 12y ago
So, is that system a time bomb for China (and the rest of the world), when one day a financially critical entity doesn't have the right political influence and goes belly up, bringing the house of cards down? Or, is there some reason to think this can go on forever and the political system will keep bailing everyone out?
- joe_the_user 12y ago
  I think the parent would argue that if the state chose not to support a given entity, it would simply support all the others and so financial collapse could still be averted. Edit: and the state can do that because it's a dictatorship quite willing to print its own money (though the US sadly little different today). The point here isn't that collapse is inevitable but that if you postpone collapse forever, you'll pay a worse price in price distortion than you'd pay if you let the system collapse. Perhaps the people in the slums will riot because they're tired of watching the empty ghost cities rot. But given the imbalance here, that possibility might be present universally.
  - vorg 12y ago
    > Perhaps the people in the slums will riot because they're tired of watching the empty ghost cities rot Despite the recent price inflation of luxury goods, the cost of rice and noodles has remained constant. Workers can still eat for 12rmb (us$2) a day, or 20 if they want vegetables and some pork. The water and power supplies are still reliable, and the governments in China are investing in infrastructure to keep them so. Construction and its flow on industries is what's keeping a large chunk of Chinese workers employed. Whereas there's problems with the luxury property market and other high end industries, the Chinese are carefully watching their social bottom line, such as ensuring cheap food and water for workers. There's still a long way to go in health care, education, and clean air though.

fourstar 12y ago

VICE did it. Better. http://www.youtube.com/watch?v=qPjGWcM3Awc http://www.youtube.com/watch?v=qPjGWcM3Awc

DominikR 12y ago

My guess would be that nothing serious would happen, because China has a government that can effectively implement whatever policy they want without caring too much about public opinion and they still have all the production facilities and cheap workforce, which wont suddenly go away because of a housing bubble. What destroyed the US industries (apart from high tech) wasn't the housing bubble or the oil prices. It was the high price for labor. Also, the reason why the housing bubble in the US caused so much trouble is that the US imports more than it exports. We have the exact opposite situation in China, where far more products are exported than imported, so destruction of wealth in China isn't going to hit their economy nearly as much as it did hurt the US/EU. Labor prices might even go down as a result, which will make them even more competitive.

crdoconnor 12y ago
>What destroyed the US industries (apart from high tech) wasn't the housing bubble or the oil prices. It was the high price for labor. No, it was the high price of the dollar.
- DominikR 12y ago
  You do realize that it doesn't matter for an importer of US goods if the high prices for US products are a result of high labor price or high dollar price. The importer just sees that the same product produced in the US is far more expensive than somewhere else.
  - crdoconnor 12y ago
    >You do realize that it doesn't matter for an importer of US goods if the high prices for US products are a result of high labor price or high dollar price. No. I never said it did matter to them. It DOESN'T matter to them. It matters to us!!! The US already has way too much downward pressure on wages - causing MASSIVE income inequality, huge private debt overhang and anemic demand. More downward pressure will simply cause half the country to drop into poverty. What it DOESN'T have is enough downward pressure on the dollar - causing exports to become more competitive and industry to start coming back, bringing jobs with them.

tokenadult 12y ago

I am amazed that so few of the comments even mention that the source of the submitted article is a newspaper in Ireland, where all the same arguments about 1) governments always being able to bail themselves out and 2) excessive investment in buildings that no one can afford to occupy being a good idea are a recent and painful memory. Ireland is still a long way from recovering from its real estate bubble, as are Spain and many parts of the United States. Commentary that suggests that China is somehow different and special and exempt from general economic principles should refer to more real-world historical examples.

crdoconnor 12y ago
Ireland was prevented from enacting any kind of stimulus by the ECB. In fact, it was told in no uncertain terms to do the complete opposite - bail out the banks and enact austerity at the exact time when she had plunging demand. This caused spiraling GDP contraction. Ireland dutifully obeyed, because the ECB controls her money supply and so holds a metaphorical loaded gun to her head. The ECB cannot order China to implement self destructive austerity, however. China is still sovereign in her own currency. In principle Ireland could bail herself out too, but it would involve leaving the Euro, defaulting and a spectacular political showdown that she really doesn't have the heart for.
- waps 12y ago
  You know, I doubt that's the case. Greece and Cyprus have crossed the EU, lied to them, and committed acts that should have meant getting kicked out of the EU. Nothing happened. If anything the EU keeps giving them more money. So now everybody knows : clearly the EU is more interested in expanding their membership and maintaining power than it is interested in financial sense and applying treaties. So while Ireland certainly seems to think the EU has a gun to their heads, this is only true if Ireland's parliament cooperates. Ireland's parliament could simply order it's banks to print Euros, lie to the ECB (they're already doing that, after all. That's what the Euro crisis was about). Ireland's parliament could simply vote to do that, and while they're at it, vote a law that this does not violate the European treaty. Then it'd be up to Brussels to kick them out, and they've already shown that they won't do that, no matter what. They're sovereign, there's a million ways they could do this. So in short : you're right, in theory. In practice, the law is simply what parliament votes to be law, and they could shortcut your reasoning at any point. Given what's already happened in the PIGS, I think they will at some point in the not-too-distant future show us that theory and practice are very different indeed.