China's property bubble bursts = Libya x200?

Great Debates
#1

The Forbbiden Cities

The myriad empty appartment complexes that litter China’s landscape – all out of reach of the average Chinese slum-dweller who earns somewhere around $6000 p.a. versus the $50,000+ asking price – and the shopper devoid mega malls et cetera seem to indicate a property bubble, that when the poop hits the fan, will make the US’ recent issues look like a ‘pffft’ form a chihuahua’s derriere! This, a result of a ‘command economy’ that must satisfy GDP targets set by a short-sighted Pinko government, as distinct from natural market demand.

Although China do keep a notoriously tight reign on freedom of expression and the Internet (Facebook - blocked, Google - blocked, YouTube - blocked… Liu Xiaobo!) in an attempt to prevent social inquietude; what happens if China also ‘does a Libiya’ and the ‘red right hand’ cracks down on their ‘expendable’ populace, as is their wont, Tiananmen Square style – will the US / Nato step in a la what’s going on in Libya now? Can they? Will Vlad P. approve…!? :stuck_out_tongue:

Further, what does this mean for the Asian continent as a whole, so much cultural malaise, if giants the likes of China go full retard too?

#2

The OP sounds more like a Debate rather than a simple General Question, so let’s move it to Great Debates.

samclem, Moderator

#3

Even if the worst happens and China begins a brutal repressive crackdown, we will not go to war with them. The global (not to mention national) consequences of a war with China would be devastating.

#4

I’m not sure that China’s ghost cities are quite the same thing as a bubble. The whole nation is still, I believe, largely a planned economy. They weren’t built due to speculation, but just because the government felt like paying people to build them.

Think of it like this:

In the US, someone speculates that a widget factory would do well. As such, he takes out a loan from a bank so he can hire on workers and build a widget factory. If the widget factory fails, all of those people are laid off taking all of the money that was initially loaned out with them – irretrievable from the vantage of the bank, and so it can’t recoup its loss. The bank’s other customers become worried that the bank is insecure, pull their money from it, making the bank fail, and all of a suddenly you have no center for finance in the nation.

China doesn’t need to take a loan to hire workers. All citizens are already employees of the government. It doesn’t really matter whether the government tells them to farm food or sit around picking their nose, the government doesn’t go into debt nor does it profit either way. So long as enough people are farming for the nation to eat, what the rest of everyone does really doesn’t matter. If the government pays the workers to go build bridges to nowhere, the money isn’t irretrievable. The Chinese government can just reclaim it whenever it wants to. It doesn’t need to make a profit to recoup losses, because it never had losses beyond that they were keeping their workers busy wasting time instead of developing something useful.

#5

Well, there are very real losses in terms of opportunity cost and materials expended. Just because an economy is somewhat-communist does not mean that it’s immune profit and loss.

#6

I do see a very large threat of instability. The government seems to agree, given the almost comical moves they take to restrict dissent.

Since liberalization, the implicit promise of the Chinese Communist Party has been “as long as you do not question our right to rule, we will make you rich.” And it worked. China has achieved humankind’s greatest rise out of poverty ever. So people played by the rules and the money kept rolling in.

But the Chinese people tend to be very practical, and for the most part they feel no special allegiance to this particular form of government. The greater concept of “China” and “being Chinese” has a very strong meaning, but China has endured empires, wars, and countless political incarnations. The Chinese Communist Party is just one player in a long story, and people will not be sad to see them go when it’s their time.

But, as long as that promise gets kept and people keep getting richer, they’ll roll with it.

The moment that stops, the moment the economy slows, stalls or shrinks, there is going to be potential for trouble. The party will have stopped delivering their end of the deal, and the people will stop having any use for them. China has some pretty heavy class, geographic and ethnic divides, and all of those will start coming out as people stop working together to get rich. There is a lot of simmering anger. It will start to matter.

The government is trying to plan for this by working with Chinese nationalism to build their own legitimacy as the sort of “end result” of the evolution of a continuous Chinese empire, rather than as yet another government that will rise and fall as China’s are wont to do. This is potentially worrisome, because back when it was less important, Taiwan became the symbolic capstone of Chinese nationalism. The fear is that an imperiled Chinese Communist Party’s last ditch effort to stay in power might be an attack on Taiwan in an attempt to raise nationalist feelings and buy legitimacy. Obviously that could get complicated really quickly.

I’m of the belief that right now, as it stands, the Party could not stand a major economic shock. And the potential is there. The bubble is real. The Party can manipulate the market in ways we can’t, and might be able to head this one off. But they do have some real reasons to feel very insecure.

#7

Humankind’s greatest rise out of poverty ever? Hardly. China’s per-capita GDP was $5300 in 2007 - one of the lower amounts in Asia. For comparison, Singapore was at $49,700. Taiwan: $30,322. South Korea: $24,803. Malaysia: $13,385. Thailand: $7909.

In fact, China ranks 17th among Asian countries in per-capita GDP.

China still has a largely command-oriented economy with strong central government control. It exerts censorship of what people read, allocates huge amounts of the nation’s capital by central fiat, and has widespread corruption due to the large state interacting with those who benefit from the state’s central plans. All these factors are holding it back compared to its neighbors which more wholeheartedly adopted market economies and freedom.

Furthermore, China maintains its competitive positions through manipulation of its currency and through the forced labor of its citizens and the ignoring of safety standards, pollution controls, and working conditions expected in the developed nations.

China’s economy is wracked by massive distortions and misallocations of resources due to central planning. Its real-estate misallocations are obvious. Less obvious are things like campaigns to educate people in fields where there is no demand - Chinese cities are filling with university graduates who can’t find work and who live in dormitories and do manual labor to survive.

There is a huge disparity between the living standards of the people in the big cities and those in the rural areas, and there is a lot of potential for strife there.

So long as China maintains a command economy, the potential for an economic disaster will be there. China’s finances are somewhat opaque, so it’s hard for us to judge exactly how healthy their fiscal situation is, but there are a lot of dark clouds hanging over them.

#8

Okay, so when can we expect the shit to get real? I know it’s bad in China, but then again, it’s bad everywhere. I would think that if China’s bubble burst, then a lot of US companies would move their shit back here to the US where it belongs.

#9

All this is true. China has risen out of devastating grinding poverty to nagging annoying poverty. And multiply a rise from $1000 a year to $5000 a year by 1 billion people, and that’s a lot of improvement for a lot of people. Of course China is still a very poor country, and they have a long way to go before they reach par with Mexico. But if you measure by percentage increase multiplied by population, it really is the largest rise out of poverty ever.

#10

The Chinese government will somehow have to placate all these new capitalists it created. Some of them actually know what they’re doing and aren’t just a front for government money. How they do that, I’m not exactly sure. They can only hide so many statistics and losses with financial accounting gimmicks.

At some point, outside suppliers are eventually going to stop shipping stuff to China. When this happens, I expect the Chinese government to get desperate and institute communistic reforms (reminding the people once again that they are communist after all).

Without force or threat of force, there is only so much they can do to get the workers…working. If they try market reforms, there will be massive layoffs and the people will know the jig is up, despite how much censorship there is. If they try to force the people to work, then news will get out and the media will exasperate the issue. All of this depends on how proactive the Chinese government is.

However, with suppliers refusing to ship, with banks and economists starting to wonder what is really happening with the capital, with mass lay-offs and government lock down, the next step for China is to repatriate and pay off its bills.

Any move by China that even hints at this possibility will cause markets to tumble world wide. Western economies are better suited to withstand this recession, arguably. Asian economies less so. At this point, then I would expect a Libya-type upheaval. I think the Chinese government will soon discover that once free markets are introduced to the people, it will be very hard to go backwards.

#11

This isn’t out of line with modern Western cities, where apartment condos frequently sell for ten times the national average salary.

#12

And yet you never see that many empty ones.

#13

If there were plenty of empty buildings in, say, Shangai, I would fear a housing bubble. Those ghost towns built in the middle of nowhere are just a waste of money, and I don’t see how they would affect the “real” market.

#14

Except in Ireland. Ireland’s now littered with “ghost estates”. Their bubble burst under liberal democracy and capitalism, but there’s been no rioting against those systems either.

#15

Yes, those kind of real-estate misallocations that we see in China could never happen in a market economy. Oh wait!

And there’s always the potential for economic disaster in a command economy, eh Sam? Maybe that big Chinese property bubble will precipitate a global economic crash! It’s exactly the kind of thing you’d expect from a command economy after all.

#16

More’s the pity sez I. :stuck_out_tongue:

#17

Well yez managed a riot when a few fat Orangemen came to town… Different priorities I suppose.

#18

Right, and there appears to be a lot of unemployment and underemployment in China today (kind of like Egypt) with many college grads in the big cities without proper jobs. There is also competition from even lower wage countries, like Vietnam and
Bangladesh. Now the government could ship everyone back to the countryside, like Mao did, but there is a lot more willingness to stand up to the government, like what happened after the earthquake, so that would be a bit dangerous.

But even if uprisings do break out, there is no way anyone in the West is going to get involved. However it would be an escalating problem, since Western companies would pull manufacturing out of there as quickly as possible if there were any risk of supply chain disruption. It would soon get really interesting.

#19

The Guards, some Orange Men, and some ne’er-do-well roustabouts. I don’t know who I was rooting for in that one.

#20

“These bastards are representational of someone who fucked our ancestors over in the seventeenth century - let’s smash the shit out of O’Connell Street” versus “these bastards are fucking us over right now - let’s, er… an egg?”