October 18, 2005

WHAT A REAL BUBBLE LOOKS LIKE:

China Builds Its Dreams, and Some Fear a Bubble (DAVID BARBOZA, 10/18/05, NY Times)

Rising prices have created a circus-like atmosphere in parts of China. Real estate fairs are mobbed, land speculation is rampant and some poor farmers dream about converting their wheat fields into the next Beverly Hills.

Indeed, prices have risen so fast over the last few years and the pace of building has been so furious here and in other large cities that the government and some leading economists have been warning about a huge property bubble in China.

The building boom is a principal reason that China is searching around the world for energy and natural resources: it needs the raw material to build new cities, and the energy to power them. That is helping drive up world commodity prices and threatening global environmental damage .

China's heavy reliance on coal to power its overcharged economy has already made it the world's second-largest producer of greenhouse gases, after the United States. And the World Health Organization says China has 7 of the world's 10 most-polluted cities.

The construction boom is also beginning to wipe out what little is left of the old China, alarming historic preservationists. Indeed, as the world's most-populous country, at 1.3 billion, rapidly modernizes and urbanizes, producing millions of new homeowners, its social and economic fabric is being fundamentally altered.

China's housing rush is being fueled by mortgage rates around 5 percent and huge inflows of foreign capital. But the boom is also driven by landmark government housing reforms from the 1990's that for the first time since the Communist revolution of the late 1940's allowed Chinese to acquire their own homes rather than live in government housing.

As a result of this privatization, thousands of new residential projects are rising in the bustling coastal provinces. And sprawling satellite towns and luxury villa developments are sprouting in what was once farmland.

This may just a suggestion of what is ahead. China expects 75 million more farmers to move to cities over the next five years, amounting to one of the biggest mass migrations in history, according to CLSA, a brokerage house specializing in the Asia-Pacific region.

"China's demand for housing is just getting going," says Andy Rothman, a CLSA analyst in Shanghai.


How economic superpowers rise (Harold James, Apr 19, 2005, Taipei Times)
[T]he economics of the rise of industrial Germany and Japan should hold comforting lessons for us today. The fears were misplaced, because the world benefited from cheaper and more readily available products. Thanks to German manufacturers, pianos were no longer restricted to aristocratic salons or the professional middle class, but began appearing in respectable working-class homes. Thanks to Japanese car producers, US manufacturers learned to produce more efficiently and competitively.?

The classical liberal free-trade argument about the universal economic benefits of greater commerce and open markets proved to be unambiguously correct. It did not matter that the catch-up countries' economic "miracles" were produced in part by illiberal policies guided by government bureaucracies. The outcome was an endorsement of the lessons of economic liberalism.

But changing economic balances also lead to changing political balances. At the moment, it looks as if there is nothing to fear from China. Like Germany in the mid-19th century, or Japan in the 1960s, China sees many advantages in participating in the international order more or less as it is currently configured.

Can this change? Germany certainly became assertive, owing mostly to the social pressures and tensions incited by rapid economic growth. When it feared that it might be overtaken by the next rising economic power, the vast Russian empire, assertiveness turned into aggression. By the early 20th century, Germans had concluded that Russia's faster demographic growth and industrialization posed a military threat.

China can already see considerable problems in the medium term. In 40 years, a demographic implosion within China, the consequence of its one-child policy, will make European and Japanese concerns about aging populations look trivial.

Before then, profound inequalities between China's poor countryside and its dynamic industrial centers will generate tensions, which may be increased by the gender imbalance -- young men greatly outnumber young women. Combine this with a tottering authoritarian regime, and something like the pre-1914 German scenario looks realistic.


Hopefully the highrises are easily convertible to prisons.

Posted by Orrin Judd at October 18, 2005 8:46 AM
Comments

Germany worried about Russia. China has its Russia too. It's called India. And as always, the United States will be there to tip the balance.

Posted by: X at October 18, 2005 1:07 PM

According to Jasper Becker (in The Chinese), Chna's one-child policy is largely a failure. In the cities it can be enforced, but in the countryside, which has most of the population, it's largely ignored. Communist officials who try to carry it out are threatened or killed, and apparently three to five children is the norm in many places. Interesting times...

Posted by: jb at October 18, 2005 6:05 PM
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