Monday, 25 October 2010

Annual Retreat

I will be taking my annual retreat in China, Jiangsu province.

This will give me first-hand experience to appreciate the rampant inflation facing China's economy and how it impacts the daily life of the local people. It also gives me the chance to understand the Bubble of the Chinese Property Market better.

I will continue to post about property issues from a transnational perspective on the USA, Japan and China property markets.

I may have limited Internet access during the period in China and I do hope to be able to do postings from there.

Reference #1
Abstracted From TODAY Oct 21, 2010

by Patrick Chovanec

Money, money everywhere. At least that's what it feels like at the moment in China. Awash in luxury cars, condos and expensive jewellery, the Chinese are enjoying what looks to be an unstoppable boom.

Inflation figures due today should give pause to those who assume China's economy is on sound footing. To an extent few appreciate, China's astonishing growth rates these past two years have been fuelled by an even more astonishing expansion of its money supply, by more than 50 per cent. Until now, the inflationary consequences have been largely camouflaged in the form of rising asset prices.

High-end property prices in dozens of Chinese cities doubled during the global financial crisis. Sales of gold bars have done the same this year. Fine pieces of jade are selling at US$3,000 ($3,950) an ounce, up 50 per cent in the past couple of months, while packets of certain types of Da Hong Pao tea are going for US$30,000 a kilogramme. Art and wine auctions in China are pulling in record prices, while the Shanghai stock market surged 8.5 per cent last week to the highest level in almost six months.

Now there are signs that inflation is spilling over into consumer prices. China's CPI has been climbing steadily all year and Chinese officials are making noises about raising their CPI target to 4 per cent or even higher. Food prices gained 7.5 per cent in August, from a year earlier. Economists estimate wages are rising about 8 per cent. The HSBC Holdings Purchasing Manager Index survey for August reported a marked increase in input cost being passed along in higher output prices......

In reality, there is rampant inflation in China. It's just showing up in asset prices. The new money that was created entered the economy as loans, mainly to fund investment in fixed assets. When it finally reached consumers, they bought tangibles, like property, instead of spending on consumer goods.

Asset-price inflation is tricky because it doesn't feel like inflation. When the price of bread doubles, it feels like it's getting harder to make ends meet. When condo prices double, it looks like smart investors are getting rich. But it's only a matter of time before asset inflation starts working its way through the rest of the economy as broader price inflation - and puts China's policymakers in a serious bind. Bloomberg

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