Have you read this one?It's all a bit cloak and dagger with Africa once again drawing the short straw.
Course I have, but it's not anymore or less critical than their coverage of Latin America, or American lobbying groups, or the Russian mafia, etc. The Economist also talks about the legacy of imperialism over the developing countries, so it's hardly singling out China for anything. The fact of the matter is there are both good and bad things going on in Africa. Good news never makes news though. The press by its nature tends to more negative than positive because that's what people pay attention towards.
Anyways, less about news coverage. More about the Chinese economy.
I wanted to point this out a week ago, but I accidentally deleted my comment, so I suppose I'll share now. The real risk of a Chinese bubble isn't in the housing market exploding. Unlike the US housing bubble, China's potential bubble isn't founded on excessive mortgage loans. Because everyone is using their savings to buy property hoping to make money off the venture, a lot of liquidity is being injected into the banking system. Not only is this contributing to inflation (there are other sources in China), but because the investment returns of land assets are seen as reliable, people are likely to leverage those assets for greater loans.
The best example of this is the activity of SOEs in the realty market. SOEs are buying land because they have nowhere else to put their money (or rather, they see this as being the best way to improve their balance sheets). Using these land assets, they can either leverage loans to purchase fixed assets which are risk being unprofitable, or provide loans to other firms in order to boost their profits even further (the danger is we've seen an increase of these loans in the last couple of years, but more on that later). The former precipitates a potential loss if supply of fixed investments outstrips demand. If these fixed investments are backed by property assets, this could create problems. However, the real danger is in the latter. The latter creates a potential situation where companies who have no other way of making profit (for example because the demand for investments reach saturation) seek to make money by leveraging loans even further (Regulations could help stem this, but I still unclear what China's laws regarding these are--the lack of transparency certainly hurts). Eventually the system runs out of juice and there are no more takers for loans. Either this, or the realization of buying too much fixed investments can trigger a crisis, which takes us back to property assets.
In order to begin paying off the series of over-leveraged loans or unprofitable fixed investments, firms will need to begin selling their property for an actual amount. When prices are driven this high they will not be able to find any buyers. The ones who could buy have their own they're looking to sell, and the ones who want to buy can't afford it (and giving them loans that they could never pay back would precipitate the problem). With no takers land gets devalued, returning the price of property back to an equilibrium level, except now you have a whole bunch of firms in debt.
Unlike the US, where people took bad loans to buy their land, in China people use a big portion of their savings. This certainly prevents a crisis founded on the inability for people to pay back mortgages. However, it does not prevent the perceived value of housing assets to back other loans which are likely to default. Personally, I think the over-purchasing of fixed investments is a far more likely trigger than the exhaustive leveraging of loans. However, the fact that so much liquidity is being put into the money markets through housing is just not a good thing no matter how you spin it.
