And it’s about time, too! The Journal is just a little late to notice what’s happening, and has been happening, over there for at least the last two years.
Let’s put things into perspective. For the last 30 years the Chinese economy has been on a tear. Ever since the lid was removed from the economy and citizens were allowed to own their own property and businesses, the economy has grown by an average of 10 percent a year. Using the rule of sevens, that means that the Chinese economy has doubled every seven years. That means it has quadrupled in output in just 30 years. Its growth peaked in 2007 at 14%. It has lifted millions out of grinding poverty and has created a vast middle class which has been saving huge sums of money.
I remember being startled several years ago seeing a photograph of a women sweeping the doorstep of her home in traditional Chinese garb, wearing a cell phone! In the US telephones were limited until the systems of wiring were built out. The Chinese skipped that phase entirely and jumped immediately to wireless once the towers were in place.
The Chinese government, using some of its vast reserves, decided to build cities to house its increasing population: about 100 cities every year! Two things happened: citizens began buying up apartments – sometimes two or three or more of them – for investment purposes. And the government, since it has no price mechanism in place, overbuilt. You’ve seen the pictures of the empty cities. All funded with paper money and justified by the assumption that someday soon – very soon – these cities will be filled with people.
But it’s just not happening. There is a huge overinvestment in real estate, and it’s about to coming crashing down. The WSJ is just awfully late in recognizing it. Or, perhaps, it confirms what others have been saying for a long time. When it comes from the mouth of the Journal then it must really be true!
Dan Weil at MoneyNews put it tentatively but accurately:
News that Chinese economic growth slid to 7.7 percent in the first quarter from 7.9 percent a quarter earlier may be a sign that the nation’s days of economic glory are over.
Even bankers are getting nervous:
“The disappointing data show the recovery is much weaker and bumpier than expected, dragged down by soft domestic demand,” Zhu Haibin, chief China economist at JPMorgan Chase, tells Bloomberg.
Watch for more on China’s popping bubble. More will be surprised. Most won’t be able to explain why.