Saturday, June 13, 2009

What is really going on in China

Chinastakes is one of the best places to read about economic trends in China. The latest article is a doozy.

Basically the Chinese are following America's example and flooding their economy with stimulus spending. In fact the majority of the stimulus is just the government directing their state run banks to lend money to anyone for any reason. Where is the money going to go when demand for manufacturing is plummeting? Speculative assets obviously. Here is the money quote.

“I began to invest my money in villas when orders began to decline in the second half of last year and my factory's production was cut by 1/3. The reason is simple. Under current economic conditions, investing in houses is safer than investing in factories,” said the owner of a private firm.

“Do you really think all those stimulus bank loans have entered the real economy?” queried a real estate dealer in Shanghai. “Of course not. They are still in enterprises’ hand, or have been invested in real estate and the stock markets. Some companies took money they scored on the stock market and invested in real estate soon after.”

Anyone with thorough knowledge of financial history knows how this is going to end.


Good story with links at
Zerohedge .