China May Find It Hard to Break Fall
Wang Tao, China economist at UBS, estimates that new housing starts fell to 2.2% year-on-year in October. More alarming, that number includes government investment in affordable housing that was meant to ride to the rescue as private investment slowed.This certainly implies that the big central government push for affordable apartments has failed.
Can China Rescue Its Economy?
Most worrisome, it appears that the factory sector is shrinking due to weakness in domestic, as opposed to export, orders.
Unfortunately for Beijing, its technocrats have already expanded their money supply to stratospheric levels. China’s M2 was 34% larger than America’s at the end of last month, even though its economy was less than half the size of ours. China’s money supply increased rapidly in the last three years, creating today’s high rates of inflation. Inflation, which came down rapidly last month according to the Bureau of National Statistics, is still uncomfortably high, perhaps more than twice the official figure.
In view of this, Beijing’s only real option is to buy GDP growth by direct spending, what some call “tidal wave investing.” The center can spend, but China has already built its “ghost cities” and other unviable projects, from one end of the country to another. A signal from Beijing that it was spending again would definitely buoy sentiment, yet technocrats no longer run a command economy and have limited means of forcing investors into projects that look unprofitable.