For some time there has been this slow, but constant, flow of news on the Chinese housing market. A runaway construction spree that has created entire cities out of nothing, to be left largely empty of people. Days ago a friend sent me a link to the video reproduced below that portraits this reality in detail. The term “ghost city” is not an hyperbole, it really exists in China, and not just in one or two places. This piece can only be classified as a good example of reporting journalism, perhaps rare, but refreshening. Nevertheless, is the Chinese housing market really just a speculative bubble or is there something deeper at work here?
The main thesis presented in the video is that speculation from foreign investors has fuelled an uncontrolled construction industry for which there is no demand, simply because regular Chinese workers do not earn enough to afford proper houses. In my view this is much more a problem of under-demand that over-supply. True, China can't continue building houses ad infinitum, but it is equally true that 1.2 billion people aspire to better living standards. Essentially, this lack of demand is a mere consequence of the Chinese government weak currency policy, that has kept the salaries of the Chinese working class artificially low. If the Yuan was let to properly appreciate against the OECD currencies many more Chinese families would have the affluence to afford modern housing.
It seems to me that China cannot prolong this policy for much longer, if the purchasing power doesn't start to increase visibly, the construction industry and many others alike face an implosion of epic proportions, just like a real bubble. What are all those houses good for if one way or another you can't fill them with people? If it doesn't happen it'll be a simple waste of resources and money. It is possible that at some point Chinese workers manage to mobilise themselves to demand such policy changes to the government. Or it might be the economic recession in the OECD, in a good part coming out of the weakness of currencies like Yuan, forcing a decisive move towards internal demand growth in China.
When that comes to happen a more fundamental problem comes about: how can China produce the energy required for a good part of its population to access modern living standards, with a proper house and a car for each family? Perhaps the answer is simply by the impoverishment of the OECD.