China’s Last Grand Stimulus Project

I see China as the center of the greatest bubble period in modern history.

The emerging world has been on an urbanization tear, especially since 1980, and China has led the way!

But, it’s not done so with the two proven pillars of democracy and free-market capitalism, which have made most of the developed world urban and rich since the late 1800s.

Rather, China is the largest centrally-planned economy in the world. It’s a model that economists drool over, calling it “state-driven capitalism,” but that’s an oxymoron if I’ve ever heard one. It’s a violation of Adam Smith’s “invisible hand.”

Democracy balances the greed and income inequality of capitalism, while capitalism balances the free-lunch, welfare state of democracy. China has removed democracy from the equation and created an environment where unelected politicians have the power to overbuild and over stimulate to please the people and keep power.

And man has China overbuilt!…

  • 22% of condos there are empty, and almost never occupied.
  • Chinese real estate is the most overvalued in the world compared to incomes.
  • Debt has grown 80 times since the mid-1990s and 50% of it is collateralized by such wildly overvalued real estate.
  • Basic industries and large state-owned enterprises have massive excess capacity – 20% to 50%.
  • 20% of Chinese bank loans are estimated to be bad, far worse than Italy.
  • China’s real estate bubble has been estimated to have finally exceeded the Japanese bubble in extremes (and don’t forget that the Japanese property bubble burst 67% in the early 1990s forward).

China’s first great top-down stimulus program was to subsidize and encourage rapid growth of export industries, especially in the 1990s forward. Exports were growing 30% a year for many years.

When that peaked out at 26% of global trade in 2009, China switched to internal growth through massive implicit debt guarantees to build shit for nobody at the local levels.

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