China's Uncertain Economic Future

BI

Conventional economic wisdom sees China as the economic powerhouse of the future -- driving world economic demand for energy and commodities through most of the 21st century. Persistent annual GDP growth rates near or above 10% have made financial analysts confident that China's economic future is secure -- even if no one else's is.

But if this confidence in the rosy future of China is misplaced, then everything we are being told about the future prices of energy and commodities -- and about the state of the global economy -- is very likely wrong. Which means that the medium term forecast will call for catastrophic storms of a global economic nature. If China's economic resources are being squandered on a construction bubble which skews the economic numbers, consumes a huge portion of the world's commodities for nothing, feeds corruption at the highest levels, and misleads the economic analysts of the world as to the true prospects of China's economy -- we have a big problem.

Recent statistics show that there are about 64 million apartments and houses that have remained empty during the past six months, according to Chinese media reports. On the assumption that each flat serves as a home to a typical Chinese family of three (parents and one child), the vacant properties could accommodate 200 million people, which account for more than 15% of the country’s 1.3 billion population. But instead, they remain empty. This is in part because many Chinese believe that a home is not a real home unless you own the flat.
And so people prefer buying to renting, and as a result, the rental yield is relatively low.

This has fuelled worries that China’s property market is bubbling. Yi Xianrong, a prominent economist, said the numbers are “shocking” and the country’s property market is dangerously overheated. “Many of them are bought by property speculators betting on a constantly rising property market,” he wrote in a commentary to the official newspaper, the People’s Daily. “This is a serious threat to the sustainability of China’s economy.” _FinanceAsia

China's political future rests upon its ability to offer a growing prosperity to its people. If China's economic numbers turn out to be mostly "smoke and mirrors," the people will grow restless. Already a growing number of Chinese within and without the government are calling for meaningful political freedoms to expand.

if the Hu-Wen leadership does not act soon, China is unlikely to see major political reforms for at least the next five years, despite everyone at senior levels agreeing on the desirability of such changes.

What is needed is action now, before pent-up frustrations result in an explosion that cannot be contained. _ChinaPost

China can easily explode in fury if its people were to suddenly wake up to the vast levels of corruption, mismanagement, and destruction of future potential which are manifested at every level of government in China. While everything looks fine on the outside, inside the bamboo prison, it is a cauldron of uncertainty and violent jostling for position.

US President Obama's plan for the US economy appears to be to borrow and spend $trillion dollar deficits into the indefinite future -- assuming the overseas borrowers of US debt will always be standing in line to purchase US securities at any old interest rate. The truth is more ominous than you will likely learn in the media or from most economic analysis in the mainstream. Unless the rest of the world begins to buy China's products as it did up till 2008, China cannot serve as the lender and commodities-buyer of last resort for long.

Artificial inflation of China's GDP numbers via a vast, corrupt construction bubble, can only work for so long. When the dominoes begin to fall, they will create more collateral damage than most people currently understand.