Bobbleheads Still Predicting Bursting Bubbles in China

June 17, 2011

It wasn’t that long ago (May 17) that I wrote about a Chicken Little-Henny Penny predicting a real estate bubble bursting in China and wrecking its economy as it did in the US in 2008.

Then a friend recently sent me another link to another “sky is falling” piece.  This time, the “want-to-happen” bad news came from Jeff Cox, a staff writer for CNBC.

Cox wrote, “China’s economy is showing real signs of weakening, particularly in real estate, and even could tip into a recession, hedge fund manager Jim Chanos told CNBC.”

I’m surprised that Cox looked under a Hedge Fund rock to find a quote predicting a bad economic future for China.

Basically, Hedge Fund managers do two things: they use small amounts of money, or leverage, to promise large amounts of stocks or commodities. Secondly, they all say they will deliver this stock or commodity at a particular point in time. In that sense, hedge fund managers are trying to time the market, which some would say is very difficult if not impossible to do unless they manage to manipulate the market in some way or have a crystal ball.

Using other sources, we discover a few facts that tell us Cox should have left that quote under the Hedge Fund rock where he found it and called someone else.


Discover how many Chinese buy real estate.

First on May 5, Jason Simpkins writing for Seeking
Alpha says,
 “Yes there are probably pockets of bubbles in China and in the real estate market, but against that backdrop you have 500 million people expected to move into Chinese cities by 2020. That means the number of people expected to move into cities is almost double the population of the United States,” said Money Morning Chief Investment Strategest Keith Fitz-Gerald. “So in the context of China’s explosive growth, what we’re looking at are some moderate setbacks over an extended period of high growth.”

Second, on May 9, James Kostohryz writing for Minyanville says, “China’s Housing Bubble: Mainly Hot Air… Studies by the World Bank, The Economist Intelligence Unit, and UBS have noted that average home prices in China as a whole have risen by roughly 6%-7% per annum in the past decade.

Third, China’s real estate investment accounts for roughly 11% of its GDP, and from Chris Oliver writing for Marketwatch on May 18, we discovered that “New home prices rose across leading Chinese cities in April, even as many key cities saw the pace of appreciation and sales volume cool, according to official data Wednesday.… Of 70 cities tracked in the survey, 56 reported gains in new home prices.”

“So, I think that it should be clear by now, that there is no generalized price or quantity bubble in the Chinese residential real estate market,” Kostohryz wrote, “Home prices have actually been getting substantially more affordable in China in the past decade relative to income levels.”

To learn more, I recommend reading what Simpkins, Kostohyrz and Oliver wrote on this topic. The links have been provided.

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Lloyd Lofthouse is the award-winning author of the concubine saga, My Splendid Concubine & Our Hart. When you love a Chinese woman, you marry her family and culture too.

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