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Ten signs of overheating in the Chinese economy

Posted on 23 April 2013 with 1 comment from readers

ArabianMoney readers may recall what the economy in Dubai looked like in 2008 with severe congestion on the roads and construction projects underway everywhere. The world’s tallest building was coming up to completion.

We now know this was a classic example of an overheating economy. Is China the same today? ArabianMoney has been touring the country and made these observations:

1. The world’s second tallest building, the Shanghai Tower is coming up for completion. It will be 632 metres high and tops another Shanghai skyscraper built by a Japanese developer.

2. Chinese cities are choking in pollution from industrial expansion. You have major cities with coal-fired power stations in their centre belching smoke. It’s horrible.

3. China now has an excellent road system but has also become the world’s largest car market. The bicycles have long gone. The traffic makes it dangerous for them and the pollution is nasty.

4. Local price inflation for staple foods, housing and even clothes is bordering on hyperinflation (click here). Shop prices are higher than in the West.

5. House price inflation has pushed home buying far out of the reach of the average salary earner. You need to be a rich investor with nowhere else to invest. It has created a classic housing bubble that may have already started to burst in some cities.

6. Take the magnetic levitation train, the world’s fastest at up to 430 kph, from Shanghai downtown to the airport and this $1.2 billion marvel is largely empty. People prefer to pay $2 for the bus or metro than $7 for this unique train ride!

7. Earlier train projects like the high-speed train between Beijing and Shanghai were a great success. However, now that the low hanging fruit schemes are built money is being spent on less and less viable projects as happened in Japan.

8. There is a bitter dispute with Japan over some uninhabited islands that has caused a severe decline in foreign direct investment (as Japan was China’s largest source of FDI), damage to trade and commercial links and almost a halt to the once very significant Japanese tourists. Overheating nations take nationalistic political positions that damage their economies. The Bank of Japan’s money printing is a direct economic attack on China.

9. In Xian we saw countless stalled construction projects. We could see many huge cities with similar massive high-rise apartment schemes from the 1,800-kilometre ride on the Shanghai to Beijing train. How many of them have now stopped working?

10. Tomb prices have rocketed to $10,000 per square metre in Shanghai, you can’t even afford to die anymore.

You hear many reports of the slowing Chinese economy at all levels and yet the government insists growth is still going to be 7.8 per cent for GDP. Both statements cannot be correct! Overheating economies implode.

Posted on 23 April 2013 Categories: Banking & Finance, Bond Markets, Business Travel, Global Economics, Hedge Funds, Sovereign Wealth Funds

1 Comment posted by readers:

Comment by Andy - 23 April 2013

China is huge just like the US. The bigger cities are close to reaching their highs but there are many little cities with big populations that are growing at enormous rate. In the UAE you pretty much only have 2 cities which are Abu-Dhabi and Dubai.. Ok I forgot about Sharjah.. In China you have hundred of cities so growth prospects of those many cities is huge and those cities alone have populations of a few million at ease.

The higher the population,the bigger the country means the longer the growth cycle will continue until there is no more local demand and foreign demand. I was just in Macau last week. Head over to about 5 of the top Casinos there and walk around. Then head over to the VIP Gaming rooms. Look at the amount of people gambling and look at the minimum bets being placed on those tables! The numbers are staggering.. If you are in Hong Kong it is just a Ferry Ride over which is just about an hour ride. The famous Hong Kong man who has 3-4 wives has a very famous Casino there. Many of the Chinese go there to Gamble so be sure to check that one out. Also, check out the real estate growth of Macau over the last few years.

I hear Jakarta should be doing well this year as they just allowed non-locals to buy condos like in Bangkok and Dubai. Add that to huge local population and demand should be quite good for condos and houses.

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