Sometime in the early 1980s, goes the popular lore, Chinese leader Deng Xiaoping looked out across the vast people’s communes and pronounced, “To get rich is glorious.”
Suddenly, without hesitation, the people put down their rakes, walked off the farm production teams, and entered the factory. Implausibly one billion people came together and focused like a laser on one single task…making stuff. Within a generation every corner of the globe was flooded with a tsunami of plastic doodads marked Made in China.
After decades of self-sabotage, people were finally getting ahead. Some bought refrigerators. Others ate red meat. The future was glorious. Everyone just knew it.
Yet when the Chinese weren’t making stuff to ship overseas, they were making skyscrapers – and brand new cities – regardless of if people would occupy them. By the start of the second decade of the second millennium the property boom had turned to an epic property bubble. According to one analyst, China is “building somewhere between 12 and 24 new cities every year.”
Obviously this isn’t sustainable. Eventually, over building leads to oversupply…which leads to an overabundance of underperforming loans.
The Mother of All Bells
Unfortunately, China’s enormous property bubble’s about to burst…it may already have. Of course, no one rings a bell at the top of the market. However, there are signs and obvious clues that things have finally gone over the edge.
Take the Pets.com sock puppet commercial in the 2000 Super Bowl. This was a profound signal the gig for dot-com stocks was up. Similarly, if you hadn’t heard, earlier this month China unveiled the world’s largest building…
From what we gather the New Century Global Center has everything under the sun, and it’s all under one roof. It has the square footage of 329 football fields within its confines. That’s enough space to “house three U.S. Pentagons, four Vatican Cities, or 20 Sydney Opera Houses,” explains the New York Daily News.
“So what is inside the cavernous space? For starters, an indoor beach and massive wave pool that will be illuminated 24 hours a day by an artificial sun and bordered by a horizon projected on a 164-yard-long LED screen. Even the gentle breeze you’ll feel while riding the waterslides at the Paradise Island water park, which accommodates 6,000 visitors, is manufactured.
“If water isn’t your thing, you could try ice skating at the regulation-size rink, or you could catch a film on one of the building’s 14 IMAX screens.
“Those who need a nap can check into one of two five-star hotels on the property, each offering 1,000 rooms.”
Certainly, this is the ringing of the mother of all bells. But there’s more…because everyone always needs more shopping…
The High Point of China’s Economic Boom
“The main activity at what officials hope will become one of the world’s leading tourist destinations is shopping. Retail space will comprise the bulk of the building’s 420 acres of floor space, roughly the equivalent of 329 football fields.
“Across a courtyard, British-Iraqi architect Zaha Hadid’s 500,000-square-foot Chengdu Contemporary Arts Centre features ample gallery space, as well as three performing arts theaters.”
No doubt, this building is quite an achievement. So, too, we think its opening marks the high point of China’s economic boom…
In fact, just as the doors were opening at the New Century Global Center, the Chinese banking system was freezing up. Who knows, really, what this means. But we’ve heard murmurings it could be the precursor to a Chinese Lehman moment.
What is clear is that China’s banking system is overextended. It has loaned out far too much money to support a real estate bubble that has received far too much investment. Investors and banks alike are in serious trouble. As to what extent will soon be known.
For now one thing is certain, what China has coming will be anything but glorious.
Sincerely,
MN Gordon
for Economic Prism
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