The illusion created by the initial success of central planning is that it can continue indefinitely, when the reality is it's self-liquidating as the distortions unravel the entire economy.
Thank you for the comments. Roger, thank you for the detailed account and links.
My impression is the housing bubble popping in China will play out more or less as all bubbles pop. It seems to be in the early innings: "Foreclosures in China Soar, Threatening to Choke Off Bank Profits
We should also note that the situation is very opaque, as whatever is viewed as unfavorable is suppressed / unreported. If history is any guide, he process may still be unfolding 4-5 years hence.
I have no competence in economic or financial affairs. I do what I can to navigate for now by reading people and their motivations as well as I can in the advice they can provide
To me there is a clear ideological component to the tenor of the predictions here. Or if not precisely ideological, then a "defensive of one's own existing understanding of or hopes for the world" related component, IMHO.
Can centralised planning guide a nation/state through all the challenges it faces? If we mean "centralised planning" in a Western understanding of that, which is modelled on the Western experience of late feudalism and absolute monarchy, then I think we can all agree the answer is strictly no.
Now, does CCP China today differ substantially from that model? Is there enough "with Chinese characteristics" in their "socialism" to mean that due to certain non universal factors, like Chinese cultural coherence, in group preference and loyalty to homeland, different outcomes might be possible, in mixing market logic and sustained political will towards certain objectives? I know what Mises and Rothbard would say. Hayek might be convinced to entertain a maybe.
Many nations, including the UK, have leasehold style properties with a very active secondary market. And there is just such a market in China, offering full price discovery. Recently, second hand home sales exceeded those of new homes and the sales of second hand homes have been significant for years.
The boom in Chinese house prices was driven by the colossal rise in real incomes, the post GFC low interest rate and liquidity measures, the very high rate of savings among the Chinese population, and the lack of other savings vehicles.
There has been a lot of economic research pointing to the benefits of the state/local council/collective keeping the freehold of the land (e.g. the Garden City movement) as increases in land value are very much driven by improvements carried out by the state (road, sewers, subways, electrification, growth policies etc.) in the service of the general population. This keeps land value speculation at bay and redirects investments away from rentier to productive investments.
The vast majority of Chinese property owners are far, far in the green on their properties and only the recent buyers are underwater, mainly in the tier 1/2 cities. The Chinese state is popping the bubble in a controlled manner while growing the overall economy at 5% and redirecting lending to productive investments; a planned reversal. With 5% growth fully reflected in income growth each year, plus a little bit of inflation, the property bubble can be reset w.r.t. house price to income ratios by the end off this decade with ongoing controlled falls in house prices.
Louis Vincent-Gave has a fascinating piece on the complete turnaround of Chinese lending from 2019 between real estate and the industrial sector. He also covers the levels of optimism among the Chinese population - which generally enjoys a very high level of optimism. The only real exceptions are the millenials in the Tier1/2 cities that entered the property market late in the bubble and the older and poorer parts of the rural population (young rurals are very optimistic).
The Chinese Party-state has been incredibly successful with its central planning, and its controlled usage of the market (keeping markets highly competitive as against the unregulated US monopolies and oligopolies that proliferate), to drive the productive forces, and remains so. China now leads in 57 of 64 critical technologies according to the Australian Strategic Policy Institute https://www.aspi.org.au/report/aspis-two-decade-critical-technology-tracker
Thank you for the comments. Roger, thank you for the detailed account and links.
My impression is the housing bubble popping in China will play out more or less as all bubbles pop. It seems to be in the early innings: "Foreclosures in China Soar, Threatening to Choke Off Bank Profits
When the housing market was flying high, mortgage defaults were almost nonexistent. But now the legal system is struggling to keep up with evictions. " https://www.nytimes.com/2024/11/04/business/china-foreclosures-mortgages.html
We should also note that the situation is very opaque, as whatever is viewed as unfavorable is suppressed / unreported. If history is any guide, he process may still be unfolding 4-5 years hence.
warm regards, charles
PS. Just in time, a referral from today's lewrockwell.com:
https://www.unz.com/runz/american-pravda-the-racial-roots-of-chinas-rise/
Many sides to the question explored here, in Mr Unz's usual style.
I have no competence in economic or financial affairs. I do what I can to navigate for now by reading people and their motivations as well as I can in the advice they can provide
To me there is a clear ideological component to the tenor of the predictions here. Or if not precisely ideological, then a "defensive of one's own existing understanding of or hopes for the world" related component, IMHO.
Can centralised planning guide a nation/state through all the challenges it faces? If we mean "centralised planning" in a Western understanding of that, which is modelled on the Western experience of late feudalism and absolute monarchy, then I think we can all agree the answer is strictly no.
Now, does CCP China today differ substantially from that model? Is there enough "with Chinese characteristics" in their "socialism" to mean that due to certain non universal factors, like Chinese cultural coherence, in group preference and loyalty to homeland, different outcomes might be possible, in mixing market logic and sustained political will towards certain objectives? I know what Mises and Rothbard would say. Hayek might be convinced to entertain a maybe.
Another area Charles is university education
In 2001 university education in China was very restricted in numbers
My wife’s uncle told me they were going to dramatically increase the number of university graduates
I told him then you will have a lot of underemployed university graduates like in the western countries
And this is exactly what happened
Frankly the housing thing was great for my wife’s relatives
Many nations, including the UK, have leasehold style properties with a very active secondary market. And there is just such a market in China, offering full price discovery. Recently, second hand home sales exceeded those of new homes and the sales of second hand homes have been significant for years.
https://www.globalpropertyguide.com/asia/china/price-history
The boom in Chinese house prices was driven by the colossal rise in real incomes, the post GFC low interest rate and liquidity measures, the very high rate of savings among the Chinese population, and the lack of other savings vehicles.
There has been a lot of economic research pointing to the benefits of the state/local council/collective keeping the freehold of the land (e.g. the Garden City movement) as increases in land value are very much driven by improvements carried out by the state (road, sewers, subways, electrification, growth policies etc.) in the service of the general population. This keeps land value speculation at bay and redirects investments away from rentier to productive investments.
The vast majority of Chinese property owners are far, far in the green on their properties and only the recent buyers are underwater, mainly in the tier 1/2 cities. The Chinese state is popping the bubble in a controlled manner while growing the overall economy at 5% and redirecting lending to productive investments; a planned reversal. With 5% growth fully reflected in income growth each year, plus a little bit of inflation, the property bubble can be reset w.r.t. house price to income ratios by the end off this decade with ongoing controlled falls in house prices.
Louis Vincent-Gave has a fascinating piece on the complete turnaround of Chinese lending from 2019 between real estate and the industrial sector. He also covers the levels of optimism among the Chinese population - which generally enjoys a very high level of optimism. The only real exceptions are the millenials in the Tier1/2 cities that entered the property market late in the bubble and the older and poorer parts of the rural population (young rurals are very optimistic).
https://research.gavekal.com/article/prejudice-and-china/
The Chinese Party-state has been incredibly successful with its central planning, and its controlled usage of the market (keeping markets highly competitive as against the unregulated US monopolies and oligopolies that proliferate), to drive the productive forces, and remains so. China now leads in 57 of 64 critical technologies according to the Australian Strategic Policy Institute https://www.aspi.org.au/report/aspis-two-decade-critical-technology-tracker