China Plays Monopoly

Well they're at it again. Supposed analysts and pundits, who should know better, have been praising emerging stock markets, and particularly China, as somehow immune from a world depression. Last year before the the October crash, they said the same thing.

Then stock markets everywhere sank along with all other assets.

About two weeks ago China stock markets  promptly rewarded this sage advice by going down.Today, I haven't looked, it's suppose to have gone up. But it still may be down 20% or more. These same analysts reply  that the central government wanted to deflate a potential stock and economic bubble, and therefore is "managing"  a decline in both areas. From the recent comments by certain government authorities, there does seem to be some truth in this hypothesis.

But is the "correction" in the stock markets over, or more to the point, does it even matter.

According to John Foley of Breakingviews.com the Chinese stock markets are insignificant to China's economy and population. Not many indigenous Chinese invest in their stock markets, 1% according to Mr. Foley, and Chinese firms receive very little financing from issuing equity.

However, Mr Foley asserts, there is another little known, big bubble that may be about to burst.

Real Estate.

Mr. Foley claims real estate prices have significantly climbed in many places < I would guess particularly urban areas > ,  with no increase in rents. This he concludes indicates speculation. Housing investment, he says, is 40%  of GNP.

I don't know where or how he calculated his figures. Nor does this seem like all that much evidence to indicate a real estate bubble.

However, Mike Shedlock of globaleconomicanalysis.blogspot.com has an interesting comment today about South China Mall in Guangzhou. Evidently it's a ghost town.

It's also suppose to be the world's largest constructed shopping center.

Sounds familiar? Like maybe some places in the USA < most places? > ?

I don't pretend to know. And anybody who does I would be very skeptical about.

China is not an open country. Many places, as I recall, are still the forbidden zone to foreigners. The fact is nobody really knows all that much about China, including at times probably the central government.  < I hope unlike Mike, such talk doesn't get this site banned in China. > Local party administrators frequently inflate the statistics they send to Beijing, to meet set targets or otherwise look good. The general  small business person, at least in places like Shanghai and the Southeast , doesn't appear to keep very many accounting records. One Chinese lady that has done business there tells me if you ask for a receipt of purchase, you'll usually get a blank form letting you fill out the amounts.

Many places in the country have a had a long tradition of avoiding  government scrutiny. < Hey if they survived under Mao they can probably handle anything. Sort of like the Russian Mafia being able to function in the former Soviet Union. >

Basically China is a cash economy.

I'm not saying don't invest in China. Just be aware of all the factors involved before you make any investment anywhere.

"If you must wager decide upon three things at the start: the rules, the stakes, and the time to quit" - An ancient proverb from China.