China Has a Problem
Here are two facts about China:
- Real estate values declined 27 Percent last month.
- Inflation is increasing.
Their economic growth has slowed a bit, but it is still really high at 9.7, at least by the official numbers. Still, China’s leaders have a problem. Inflation can eventually create disastrous problems, but eliminating it would require raising the Renminbi, which would slow exports and economic growth.
The real estate problem is just a miss-allocation of assets, and has to work itself out, just as it is doing here. Not much they can do about that.
China needs to maintain rapid economic growth to manage the migration from rural to urban areas that accompanies its becoming a modern economy. Slow growth would lead to increased unemployment and political instability, and they don’t handle political instability well in China.
You say “China needs to maintain rapid economic growth to manage the migration from rural to urban areas that accompanies its becoming a modern economy.” I agree, but would issue one further caution: existing Chinese urbanization statistics are not comparable to those used in other countries. China’s definition of urban (a definition repeated by the UN) is almost four times the density of people per square km as that used in the developed world. In other words, China is already far more urban than people think. For example, an area that contained 500 people per square km would be classified as urban in the US or France, but would need to add a further 900 people per square km to be called urban in China!
For details & documentation see: http://silberzahnjones.wordpress.com/2011/04/08/statistical-cautions/