“You never know who’s swimming naked until the tide goes out,” according to a familiar phrase. The Chinese economy brings this metaphor to life.
Now that the tide of rapid economic growth is receding from China’s shores, everyone can see that many facets of the Chinese economy lost their swimsuits a while ago.
The Chinese real estate market and stock market are both stark naked. There is no “there” there… or at least not where the “there” is supposed to be.
The real estate market might as well be “The People’s Steel and Glass Museum.” The buildings are many; the occupants are few. The prospective occupants are even fewer. Demand is weak, relative to supply. As the chart below shows, residential real estate purchases have been consuming an ever-shrinking percentage of the real estate on the market or under construction.
Image may be NSFW.
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And to what should we compare the stock market? Perhaps to a rigged carnival game? No matter how many plastic rings investors toss at the Shanghai Composite’s array of empty Coke bottles, the rings always seem to bounce around erratically… before inevitably bouncing to the floor.
No one is walking away from that carnival game with a giant stuffed panda bear.
So as a consequence of these ongoing twin disasters – real estate and stocks – desperation is the one remaining investor impulse.
Due to desperation, some investors turned to the “shadow banking” sector to earn (the promise of) a fixed high rate of return. But now, even that investment outlet seems to be a disaster in the making.
Over the last couple of days, the headlines out of China featured the shocking news that a lending scam bilked Chinese investors out of $7.6 billion. The perpetrator of the scam, Ezubo, was a prominent member of China’s so-called shadow banking system.
The massive scale of this fraud provided plenty of reason to worry about the rest of the Chinese shadow banking sector. Is it also “swimming naked”? Did it also lose its swimsuit? Or maybe the shadow banking sector never had a swimsuit in the first place. Maybe it has just been skinny-dipping for as long as the high tides of economic vitality would permit.
So now what? What is that battered, abused and defrauded Chinese investor to do? What options remain? Here are two possibilities:
- Move money offshore… in any and every way possible
- Accumulate precious metals.
Financial self-preservation has become the first order of business in China. So no one should be surprised if the Chinese continue moving money offshore and/or buying precious metals.
Cheers,
Eric J. Fry
For The Non-Dollar Report
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