A China Bub­ble?

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There is no end of com­men­tary about China’s real estate bub­ble, with an even split between those who believe it may pop at any moment, and oth­ers who argue it never will.

The alter­na­tive ploy — that it doesn’t exist — doesn’t get same air­ing that it did in the US before the sub­prime crash. Instead, the “it’s a bub­ble, but it won’t burst” case is that the bub­ble is too impor­tant to China’s con­tin­ued growth to be allowed to burst, and — unlike the US — China has the where­withal to keep it going, at least for a while. (See There will be no Min­sky moment for China, March 25; China Can’t Afford to Let Its Hous­ing Bub­ble Pop, Jan­u­ary 30;Tem­ple­ton Brav­ing China’s Hous­ing Bub­ble, Feb­ru­ary 28; Chi­nese Prop­erty Sec­tor Will Not Implode Like America’s Sub­prime Mar­ket, March 11.)

I have delib­er­ately refrained from this dis­cus­sion, mainly because I pre­fer to work from data, and I pre­fer data that — despite some warts — I trust. Until recently there was no pub­licly avail­able data on China’s debt lev­els, which is a key met­ric for me; for­tu­nately that has been reme­died recently by the Bank of Inter­na­tional Set­tle­ments, and I’ll analyse that in a future post. But what­ever it reveals, I also con­cur with the alter­na­tive ploy to some extent — that though there is a bub­ble, China’s capac­ity and deter­mi­na­tion to con­tain prob­lems is much more impres­sive than the US’s.

But I also wanted to see the phe­nom­ena first hand before I com­mented. Anec­do­tal and eye­wit­ness evi­dence counts for some­thing.

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About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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  • ken

    It seems a rea­son­able assump­tion is that the Chi­nese gov­ern­ment will be much more inter­ven­tion­ist than West­ern gov­ern­ments. The ques­tion is how well will it work? Can they deal with an econ­omy that is fail­ing in mul­ti­ple ways? One thing that will go in their favour is that they won’t be restrained in tak­ing over pri­vately owned enter­prises and con­tin­u­ing to oper­ate them, but that may give them many of the prob­lems of pre­vi­ous state-owned enter­prises. May be very inter­est­ing times.

  • Steve Hum­mel

    Inher­ent dis­e­qui­lib­rium and either stub­born and irra­tional belief in its oppo­site or pal­li­a­tion of it instead of pro­vid­ing actual solu­tions to it.…eventually never works out.

  • koonyeow

    I was in Chengdu, Sichuan last month and I saw lots of empty apart­ments both around and at the out­skirt of Chengdu. If the cen­tral bank is obe­di­ent, China should be able to go Japan­ese. What sad­dened me was the amount of resources being wasted.