There was no place to comment on Charles Hugh Smith’s blog post that pointed out a major potential fault line in China’s economy, namely their scores of empty apartments… so I thought it best to write a response here:
These Chinese city flats and other housing constructions (maybe a suburban phenomena as well? I don’t know enough about China’s current urban developments—it’s doubtful even China does) are sitting brand new, completed, but as of yet unsold. The fear of the short-sighted analysts (I don’t necessarily number CHS as one of them, he’s just pointing the issue out) is that this bubble of bad investment will crash China’s economy as well as the global economy. I’m guessing their fears are at least in part because of the illiquidity being literally built in to China’s economy with such permanent and potentially wealth-sucking blackholes as uninhabited buildings.
Whether or not China intends it—but I think they do—these housing options will be where some of the new non-Chinese moneyed elite will be flocking to as China remains one of the few economies left standing; they will certainly be the strongest country (financially) left after the financial and energy markets wreak havoc, so long as things don’t go terribly wrong militarily. These notions of far reaching global shifts in power don’t generally enter into the minds of most western analysts, especially given the fact that their “macro” analyses were built of (soon to be) antiquated western worldviews that preclude such thought. I think that is why I am probably relatively alone in seeing what seems to be such a “metaphysical” problem (because economics these days are truly pejoratively, metaphysical) as really a grand physical opportunity. Just because liquidity can dry up and prove to be really valueless, doesn’t mean that illiquid goods won’t have a great deal of value. To have a surplus of housing is quite a good thing to be holding on to, as opposed to a load of worthless federal reserve notes.
Indeed, China will become a global host, opening up to be a more modest cosmopolitan country (in comparison to a whored out Manhattan) so long as the benefits are mostly to the mother country. China has to be anticipating its interception of the globalized world and it is certainly doing all in it’s power to not intercept a candle that will in short order be blown out. They will want to keep as many national thermal generators burning and how better to do that than housing some of their leaders to inspire them with residency in a still “functioning” (in terms of industrialized capitalism) economy. They know they will need to cheerlead and put forth great amounts of energy—much like the US did after WW2 with the Marshall plan—to keep their new satellite states orbiting around their dense sphere of interdependent dominance.
This will prove to be just one in several concurrent chess moves that will put Eurasia back in the seat of prominence.