"Sinocism is the Presidential Daily Brief for China hands"- Evan Osnos, New Yorker Correspondent and National Book Award Winner
Presented without comment, other than to say that Arthur Kroeber has historically been one of the most reasoned and accurate observers of China’s economy.
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really? I found kroeber when i met him to be disingenous or at least have only a passing grasp of economic history when it came to fixed asset investment cycles
If there’s no bubble he needs to address why housing rental/purchase ratio is insane, and purchase/per capita income is also outrageous.
Thanks for posting this – I clicked through the FT Alphaville blog, where it was presented alongside a piece by Michael Pettits. They both highlight how economics is as much (if not more) about the statistics and measurements that you choose to emphasize/include. In terms of Kroeber’s presentation, I think one point of concern that he neglects to deal with in regard to the housing situation is the distribution of housing vis-a-vis the demand for it. Yes, there is an absolute shortage of housing but it is most acute in high demand areas (such as Beijing and Shanghai) + why there exists the phenomenon of “ghost towns” in places where housing has been built but where there is little demand. If one accepts that there is a limit to the growth of the housing supply in the high-demand areas, then the “ghost towns” will only become filled in once jobs + infrastructure are more developed (e.g. transport allowing people to live there and commute into places like Beijing). This is what should happen from a developmental point of view, as occurred with the US in the 1950s. However, surely the issue for China is a temporal one – will these ghost towns be populated in time before the loans for developing these properties go bad. On balance, you would expect it to happen but it requires more evenly distributed growth and it is not clear that this will happen in time.
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This is very strong. But I agree with Panda Bear that the common argument that there is no housing bubble because lots of Chinese people need better housing to be way too easy. China’s a huge country with a huge variation in housing demand, and there are lots of luxury developments being built in 3rd, 4th, 5th tier cities that local residents won’t be able to afford for many years. As long as non-residents keep buying them for investment, no problem, but the instant people start to wonder if those places are worth what they paid for them, a big box of trouble is opened.
GDP can easily rise, if accompanied by a rise in credit that is greater. The problem is, can China conjure enough credit to keep the economy going, or will it experience a credit crunch. A bit too much and you’ll have hyperinflation. Too less and you’ll have a Depression. Based on the ghost cities, I doubt they will be able to.