Aftershock: Protect Yourself and Profit In The Next Global Financial Meltdown, Second Edition

A Closer Look at China’s Current Bubble Economy: This Dragon Is More Smoke Than Fire

Eye-catching statistics coming out of China indicate the Chinese economic bubble, especially their real estate bubble, is pretty big. For example, the average sales price of an apartment in Beijing is 57 times the average worker’s annual income according to SouFun Holdings data reported in the Wall Street Journal. In the United States, at the height of our real estate bubble, the average price of a house was barely four times the average worker’s income. According to the State Grid Corporation of China (SGCC), a power grid corporation owned by the State Council, 65.4 million houses in 660 cities across China have had zero electricity consumption for six months in succession, indicating that they are unoccupied. This is largely due to overbuilding and the inability of Chinese to buy homes at current prices.

Many investors are buying Chinese homes waiting to flip them at higher prices. These investors consider empty homes to be gold in the bank. They are also being richly rewarded. Monthly increases in 2010 prices have been between 5 percent and 10 percent in many major cities, including Shenzhen and Beijing. Of course, all Chinese statistics are suspect. It’s hard to know exactly what’s going on over there. Some people say that all U.S. statistics are suspect, too and, there is some truth to that. But, we’d like to think that Chinese statistics are even more suspect.

Nonetheless, the fundamentals ...