Today we watched a video of the Chinese demolishing dozens of high-rise apartment blocks per government mandate, the video is here.
This implosion video reached us on the same day that China’s largest real estate development company Evergrande seems ready to also implode its balance sheet.
Here is a story from Reuters with a video on the topic of Evergrande preparing to file for bankruptcy.
Some readers may be old enough to remember when investors feared that China was wasting money by constructing apartment blocks and cities that would never be used.
Circa 2011 this debate over ghost cities drew interest from all over the globe. The phrase Ghost City was a dramatic way to say that people could drive for miles amongst these brand-new apartment towers in which not a soul was living.
China’s centralized, communist-based structure and lack of property rights made it possible for the government to expropriate the homes. Also, the land which existed before construction started.
And some even applauded the government for building affordable housing. Which would later be used by millions of people moving from the farms into cities for factory work.
However, others disdained government interference within the economy and complained about how these towers could only be built with government guaranteed debt. This was because interest rates were too low and the government interference also meant that the money allocated to projects that would otherwise be unsustainable.
Government Interference in the Economy and Money Printing
It was well known that local government officials wanted to demonstrate the vitality of their economy through the demonstration of continually higher GDP figures. Thus did whatever it took to make sure that these projects were built!
These ghost cities helped fuel China’s GDP double-digit GDP growth. This growth came at a cost though – the misallocation of capital due to government interference is now starting to crumble.
At the heart of all this growth was a ballooning central bank balance sheet. From 2000, when China joined the WTO until 2013, China’s central bank balance sheet grew almost 900%.
When exports are much higher than imports, companies deposit foreign currency into their Chinese banks. Those banks then hand out local renminbi which circulates within the economy.
China’s Central Bank Balance Sheet Chart
Government interference in the economy and money printing isn’t like eating rotten sushi. When rotten sushi is consumed, the consequences are felt almost immediately.
When it comes to money printing and government interference causing harm to the economy, there is no puking on the same day like with rotten sushi. It can take decades for the consequences fully felt.
Government interference and overreach are very visible in China’s controlled economy. But it is very prevalent in other economies as well.
The continued printing and reach of the central bank aren’t going away anytime soon.
Chinese government officials would do whatever it took to meet their goals, and the ECB (European Central Bank) President Draghi’s infamous “ ” speech of 2012 is very much the same story.
Not only does the ECB continue to operate by this principle. So does the Bank of England, the US Federal Reserve, and Bank of Canada.
15-09-2021 1801.40 1796.95 1302.95 1297.40 1523.62 1520.40
14-09-2021 1788.65 1792.75 1289.26 1292.39 1513.56 1516.67
13-09-2021 1787.85 1793.90 1293.87 1296.09 1516.63 1520.33
10-09-2021 1799.90 1794.60 1297.55 1293.91 1519.30 1516.44
09-09-2021 1795.35 1788.25 1299.12 1292.01 1517.61 1513.57
08-09-2021 1797.95 1786.00 1306.57 1297.53 1521.25 1511.49
07-09-2021 1810.75 1802.15 1310.26 1307.10 1525.01 1520.65
06-09-2021 1823.85 1821.60 1318.10 1317.02 1538.05 1535.06
03-09-2021 1812.05 1823.70 1309.39 1316.53 1526.11 1534.46
02-09-2021 1815.15 1812.55 1316.53 1311.74 1532.17 1528.52