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China’s Property Bubble Finally Popping

China’s Property Bubble Finally Popping
Profile photo of James E. Miller

Hear that?  It’s the familiar sound of another central bank financed bubble bursting!

After years of speculation, it looks like China’s aggressive money printing has finally caught up with the once-communist country  As goes the classic Mises line from Human Action (p.570):

“There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved.”

From Ambrose Evans-Pritchard of The Telegraph:

It is hard to obtain good data in China, but something is wrong when the country’s Homelink property website can report that new home prices in Beijing fell 35pc in November from the month before. If this is remotely true, the calibrated soft-landing intended by Chinese authorities has gone badly wrong and risks spinning out of control.

The growth of the M2 money supply slumped to 12.7pc in November, the lowest in 10 years. New lending fell 5pc on a month-to-month basis. The central bank has begun to reverse its tightening policy as inflation subsides, cutting the reserve requirement for lenders for the first time since 2008 to ease liquidity strains.

Chinese stocks are flashing warning signs. The Shanghai index has fallen 30pc since May. It is off 60pc from its peak in 2008, almost as much in real terms as Wall Street from 1929 to 1933.
With protests over rising prices occurring more frequently, China is between a rock and hard place in trying to print its way out of its self imposed fiat disaster.  The slumping M2 money supply is a clear sign a large downturn is set to occur.  In July 2008, M2 growth in the U.S. literally collapsed.  We all know what happened less than two months later.  For an economy driven by massive credit expansion, the slightest bump in the road in keeping the money flowing has disastrous consequences.  After spending the year hiking bank reserve ratios in a vain effort to cool inflation, bank reserve ratios were once again lowered just two weeks ago; a clear sign China’s monetary officials are scrambling to control their frazzled economy.  Central planning never works of course.  It just creates market distortions as bureaucrats attempt to direct the individual actions of millions.  One only needs to look at reports of China’s 60 million-plus vacant apartments, ghost cities, and abandoned amusement parks to see explicit examples of malinvestment:
China is in for a hard landing thanks to another case of boom & bust brought about by easy credit and currency pegging via its central bank.  For those who understand the nuances of the Austrian Business Cycle theory, this was expected.  The rest are just now catching up.
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James E. Miller is editor-in-chief of Mises Canada and a regular contributor to the Mitrailleuse . Send him mail

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