Why China's Growth Is Not Sustainable (May 31, 2007)
There is a quasi-religious belief in some circles that China's current boom will last for decades. For those who seek facts rather than faith, consider the following excerpts from National Geographic's current article China's Instant Cities: (emphasis added)
From 2000 to 2005, Lishui's population went from 160,000 to 250,000, and the local government invested 8.8 billion dollars in infrastructure for the region it administers. During those five years, infrastructure investment was five times the amount spent in the previous half century. In money terms, what was once 50 days' work is now done in one.Allow me to summarize: local governments must rip off peasants and fuel a speculative real estate bubble in order to fill their coffers. They currently have no other choice.
This is the very epitome of unsustainability: a fiscal policy guaranteed to spark social outrage and guaranteed to bring on a speculative bubble's collapse.
If it is now your religion that China's boom will extend for decades, then your faith is resting on some very tenuous threads of reality.
These are just a few of many such pressing questions regarding the sustainability of the system.
Frequent contributor U. Doran sent in two links describing the unsustainability of the Shanghai stock market:
China Crash - domino effect on US markets (great charts)
Shanghai stock bubble compared to Nasdaq bubble (stunning charts)
Longtime correspondent Albert T. sent in this link describing the cooling real estate market in Shanghai: Shanghai eases land restrictions for foreigners:
Concerned about a slowdown of contracted foreign investment, the Shanghai municipal government has eased restrictions to lure foreigners to invest in property development again, in a reversal of an earlier policy aimed at cooling down the real-estate sector.Albert summarizes the situation thusly:
This is an interesting development. I smell a bubble bursting, and they need the final sucker to bail out the speculators (everyone).When everyone is a speculator playing with borrowed money, it's a mania/bubble, regardless of the nation or the era--and all mania/bubbles end the same way. If you need further evidence that the bubble in the Shanghai stock market is a mirror of the bubble in Shanghai real estate, consider this tidbit from Shanghai slump as China cools markets:
An indicator of the widespread speculation gripping the Shanghai exchange came last month with a Chinese government website reporting that one in 10 maids in the city, China's financial capital, had quit their jobs to take up trading full time.When maids are quitting to play the stock market and local governments are relying on flipping stolen land to speculators, the mania/bubble is clearly about to burst. Maybe afterward, when people have lost their fortunes and their anger knows no bounds, then a more sustainable model of development will arise.
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