China: Bubble vs. Bust

We’re here in Britain’s former South China Sea jewel for the next few days to collect passport stamps and chat with locals. We’re trying to work out whether China is the world’s biggest opportunity…or the world’s biggest bubble. Probably, it’s a bit of both.

On the one hand, there is plenty of hot, speculative money chasing pricier and pricier real estate investments in Beijing, Shanghai and right here on Hong Kong Island. Today’s South China Morning Post reports that prices in 70 medium-sized cities across the mainland rose by 5.7% just last November, the quickest pace in 16 months. The central government is investigating methods to “cool” the market through “tighter scrutiny of bank lending,” designed to prevent what it calls the “inflow of illegal funds into the market.”

Few doubt that property markets both here and on the mainland are getting a bit “frothy.” But that’s only part of the story. There is also the very real, tangible demand of the world’s largest population to contend with. One point three billion people demand basics like water, food, fertilizer, energy and the infrastructure to produce and harness it all. They’ve worked long and hard to produce junk for the rest of the world. Now they want some return on their labor.

There are many questions facing China…and a multitude of possible answers for each of them.

The Daily Reckoning