Weak foreign trade shows China’s macro-economy has not experienced any rebound from the bottom. CPI dropped 1.4%, year on year, in May, while PPI dropped 7.2%. This is the fourth straight month for decline in both figures, indicating looming deflation.
But go figure–China’s real estate market is booming along with its stock market. The March rebound in the real estate market has developed into a luxurious banquet for the property industry.
New lending in China in just the first four months of the year totaled 5.2 trillion yuan, with the 2009 total estimated to exceed 8 trillion yuan. Although the great bulk of these funds have not gone directly to real estate developers, the downturn of the macro-economy has other sectors investing in real estate. Significant chunks of those trillions of lent yuan have not entered the real economy at all, but are pushing up prices in the stock and real estate markets instead.
“I began to invest my money in villas when orders began to decline in the second half of last year and my factory’s production was cut by 1/3. The reason is simple. Under current economic conditions, investing in houses is safer than investing in factories,” said the owner of a private firm.
“Do you really think all those stimulus bank loans have entered the real economy?” queried a real estate dealer in Shanghai. “Of course not. They are still in enterprises’ hand, or have been invested in real estate and the stock markets. Some companies took money they scored on the stock market and invested in real estate soon after.”
Some day fairly soon the debts on all the real estate and stock market speculation in China will come due. We hope the real economy in China – the only source of income- will have recovered in time to pay off those debts. In the case of the Unitied States, the stock and commodity bubble is being reflated – but here too, the debt associated with this speculation will have to be paid with income (or taxes on income) from a tapped out middle class, or defaulted on, some time soon.
