Just back from 2 weeks in China, I came away with one overwhelming impression: China is temporarily hyping its economy building millions of urban residences that won’t be filled, creating a housing bubble that will make the one in the U.S. pale into insignificance. This brand new city of high rises along the Yangtze River in central China, for example, is just 5 years old and has a population of 600,000, larger than Milwaukee. Everywhere we went, from Shanghai and Beijing to cities in the interior, construction cranes span the horizon and modern highrises crop up in clusters that could house another 20,000 here or 50,000 there. 80% of the Chinese are rural, and 15 million a year move into cities in search of jobs in new and growing industries. By 2004, China had 108 cities with populations over one million, and that will swell to 221 such cities by 2025, vs. 35 in all of Europe. My feeling is that jobs won’t grow fast enough to keep up with the housing boom, and I understand from a recent article (http://www.zerohedge.com/article/next-chinas-property-bubble-step-function-explosion-vacant-inland-cities) that there are already 65 million vacant new urban homes in China. Building all these homes employs a lot of people, generates a lot of investment in construction and artificially makes the economy seem more active and prosperous than it is. But how long can China get away with a currency with buying power 40% below the dollar, and nearly 70% below the Swiss franc? As purchasing power tries to balance out, the demand for cheap Chinese goods may falter, industrial growth may slow, and China will have a housing bust to end all busts. Then what will the central planners do — manage another people’s revolution? My sense is that China’s growth is going too fast, and is being forced beyond what markets will absorb. China’s urbanization is impressive, but in my book, excessive.

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