China is experiencing an “Austrian” boom-bust cycle writ large, with the boom phase possibly nearing its demise. The extent of mal-investment is unprecedented in modern times. The most obvious signs of this mal-investment are new cities with almost no inhabitants and massive newly-constructed shopping malls with almost no tenanted shops, but the problem runs much deeper than the unoccupied buildings. The core of the problem is that the banking industry is completely dedicated to serving the State, and as a consequence a lot of bank lending is done with total disregard for economics.
Considering that most analysts and investors believe that China is making rapid REAL economic progress and that China’s economy will continue to strengthen, one of the next shoes to drop could be the general realisation that China’s economy is structurally unsound.
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