RE: China's phony construction boom
September 30, 2013 at 10:11 pm
(This post was last modified: September 30, 2013 at 10:22 pm by Anomalocaris.)
There is nothing phony about the Chinese construction boom. Phony construction boom would be a spree of building fake houses.
Everything built in china is real. The main thing is they are built on highly speculative financial forecasts. The Nature of construction boom changes on a sliding scale as a function of ease of obtaining credit. When credit is difficult to get, then only the most reliably profitable projects will past muster. When credit is cheap, all sorts of speculation runs rampant, because the speculator stands to profit from event the slimiest chances of success, while secure in the knowledge he could pass the risk to the creditor.
What china is seeing now, and attempting to control, Is quite a real construction boom, but one that is based largely on speculation.
On the flip side, the west does tend to indulge in premature Schardenfreude where chinese development is concerned, perhaps partly out of the fear that appearent opportunity for glee must be indulged in promptly and to the hilt lest the opportunities proves false with passage of time. With this in mind one must admit China indeed had a substantial history of making massive investments that appear speculative to western eyes, but which later prove remarkably well thought out and prescient. One example is the country's half trillion dollar high speed rail network, which was launched amidst howls of glee, but which now runs at full capacity and is considered a cornerstone of the country's 50% gain in blue collar productivity since 2007. Another is the recent dire forecast of utter and unavoidable credit catastropy, which had been shrill as recently as july, but which seem to have vanished as completely as the voices of the doom Sayers.
Everything built in china is real. The main thing is they are built on highly speculative financial forecasts. The Nature of construction boom changes on a sliding scale as a function of ease of obtaining credit. When credit is difficult to get, then only the most reliably profitable projects will past muster. When credit is cheap, all sorts of speculation runs rampant, because the speculator stands to profit from event the slimiest chances of success, while secure in the knowledge he could pass the risk to the creditor.
What china is seeing now, and attempting to control, Is quite a real construction boom, but one that is based largely on speculation.
On the flip side, the west does tend to indulge in premature Schardenfreude where chinese development is concerned, perhaps partly out of the fear that appearent opportunity for glee must be indulged in promptly and to the hilt lest the opportunities proves false with passage of time. With this in mind one must admit China indeed had a substantial history of making massive investments that appear speculative to western eyes, but which later prove remarkably well thought out and prescient. One example is the country's half trillion dollar high speed rail network, which was launched amidst howls of glee, but which now runs at full capacity and is considered a cornerstone of the country's 50% gain in blue collar productivity since 2007. Another is the recent dire forecast of utter and unavoidable credit catastropy, which had been shrill as recently as july, but which seem to have vanished as completely as the voices of the doom Sayers.
