China’s Economic Challenges

Previous posts this year, “The China Bubble,” and “National Debt and Rates of Return,” have already emphasized that China’s real estate market is grossly overvalued. Today on the respected economics blog GlobalEconomicAnalysis.com, Mike Shedlock has offered new insights on the coming correction in China which he, too, has seen coming for a long time. In his post “China Hikes Rates, Ponders Capital Controls to Halt Currency Inflows,” Shedlock lists eight reasons China faces a hard landing:

Hot money inflows Huge property bubble Massive increases in money supply, much of it property speculation and building of unneeded capacity Currency manipulation charges from the US and potential trade wars Unsterilized trade imbalances fuel inflation Slowing Europe Dearth of Jobs for new graduates Potential social unrest

Shedlock also provides a link to a story posted December 18th, 2010 on the U.K. Daily Mail’s website entitled “The ghost towns of China” that shows amazing satellite images of deserted cities that are meant to be home to millions. And today in the Wall Street Journal, a column by Hugo Restall entitled “China’s Real-Estate Frenzy” has this to say about a property bubble in China, “Housing prices in the U.S. peaked at 6.4 times average annual earnings this decade. In Beijing, the figure is 22 times.”

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