Thursday, September 10, 2009

China's state sponsored economic bubble

A while back we discussed signs of an asset bubble building in China. Let's now take a glance at China's government contribution to this bubble formation. What's particularly striking is the amount of waste involved as the Communist regime's central planning pushes through massive infrastructure projects. Many are developed without considerations for returns or the ability to pay back loans. The government can force state banks and other institutions to keep money losing businesses running, while they develop new ones. It's a form of stimulus that generates rapid short-term growth, but is not necessarily sustainable and is not likely to stimulate domestic consumer demand in the long run.

Example 1: Office real estate:

Example 2: The World's Largest Shopping Mall (Click picture to watch POV video):

hat tip Patrick
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