Chinese Housing Bubble

It’s hard for most of us to imagine, but China is experiencing skyrocketing price inflation, which includes a housing bubble that puts the Las Vegas suburbs to shame. The Financial Time reports of an amusing viral email that’s getting passed around Shandong:

With consumer inflation in China topping 5.1 per cent in November, public dissatisfaction at price rises has reached the highest level since records began in 1999, according to a recent central bank survey.

But such surveys cannot convey the acerbic political wit that Chinese people, and especially Beijingers, are famous for when they have to “eat bitterness” – in this case to meet the cost of buying a home.

The e-mail, which has gone viral in various versions, provides unscientific but entertaining estimates of how long citizens would need to work to afford a 100-square-metre apartment in central Beijing, which currently sells for about Rmb3m ($450,000).

As long as there were no natural disasters, a peasant farmer working an average plot of land would just have been able to afford an apartment if he or she somehow had worked since the Tang dynasty, which ended in 907AD, until today.

If a Chinese blue-collar worker had been on the average monthly salary of Rmb1,500 since the opium wars in the mid-19th century and had given up weekends, then he or she might just have been able to afford a place of his or her own.

Prostitutes, the e-mail says, would have to entertain 10,000 customers – a marathon feat requiring them to service one customer a night from the age of 18 until the age of 46 without an evening off.

The thief would need to conduct 2,500 robberies to find the funds to buy a home.

Of course, the e-mail notes, such calculations do not count interior decoration, furniture or household electronics.

Inflation is a much misunderstood phenomenon, which results in the kind of befuddled, helpless state of mind evinced by the above emails. The Chinese are experiencing rising prices because the state’s central bank is digitally printing—that is, purposely devaluing—renminbi in order to keep up with the Fed’s dollar printing and maintain exchange-rate parity (the “peg”) between the two currencies. China can’t keep the peg and fight inflation; Graham Summers observes that one of these objective must prevail:

Over the last few months I’ve noted repeatedly that THE key issue for the financial markets is the ongoing tension building between the Fed’s pro-inflation policy and China’s anti-inflation policy.

That tension just kicked it up a notch.

Over the weekend China hiked interest rates 0.25%. This was the second interest rate hike in three months (the first was on October 19, 2010). And it sends a clear message that China is taking action to cool its monetary system after consumer prices rose 5.1% in November.

China’s not the only one. Both Russia and Brazil have recently entered into the “anti-inflation fray”…

{snip}

In plain terms, our esteemed Fed Chairman Ben Bernanke is about to find his policies running face first into a BRIC wall. He’s been exporting inflation abroad to the emerging markets all the while claiming it doesn’t exist. With growing civil unrest due to soaring food and energy prices the emerging markets are now fighting back.

On that note, China and Russia have already cut their US Treasury holdings by 3% and 9% respectively year over year.

Oct-09

Oct-10

China

$938 billion

$906 billion

Russia

$145 billion

$131 billion

These may not seem like a HUGE drop, but when you consider that both countries are aggressively loading up on Gold and other natural resources at the same time, and we may be at the beginning of a potential seismic shift away from US debt for foreign central banks.

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Richard Spencer

A former assistant editor at The American Conservative and executive editor at Taki's Magazine (takimag.com), Richard B. Spencer is the founder and co-editor of AlternativeRight.com