China’s Bubble Produces Empty (!!!) City

posted by Nima

December 18, 2009 · Posted in Global Economics

… it is hard to find a better example of how government spending produces rampant malinvestment. Note that spending on such useless projects is not the only source of “GDP growth” by Chinese measures: Even funds that are only earmarked, not yet spent, are included.

What drives all this madness? It’s simple:

China’s banks extended more loans in November than economists forecast.

New local-currency loans totaled 294.8 billion yuan ($43.2 billion), compared with 253 billion yuan in October, according to data released by the People’s Bank of China on its Web site today. The median forecast of 19 economists in a Bloomberg News survey was 250 billion yuan.

M2, the broadest measure of money supply, rose a record 29.74 percent in November from a year earlier.

This is why I believe that the wide spread notion Free Floating Yuan = Stronger Yuan is a complete and utter fallacy.

China’s growth is a mirage, its bubble a monstrous one, its impending crash completely inevitable.