China's credit bubble on borrowed time as inflation bites - Telegraph

The coming economic problems in China will probably flow from the following observations....

It concluded in a report last week that there was no nationwide bubble but that home prices in Shenzen, Shanghai, Beijing, and Nanjing seem "increasingly disconnected from fundamentals".

Prices are 22 times disposable income in Beijing, and 18 times in Shenzen, compared to eight in Tokyo. The US bubble peaked at 6.4 and has since dropped 4.7. The price-to-rent ratio in China’s eastern cities has risen by over 200pc since 2004

The IMF said land sales make up 30pc of local government revenue in Beijing. This has echoes of Ireland where "fair weather" property taxes disguised the erosion of state finances.

Well, since few can afford to buy homes in China, there are only 2 possible solutions; 1. Prices fall, 2. Incomes rise dramatically. Both will create its own difficulties.

The biggest problem, early successes in state controlled capitalism has embolden China's leaders that they could actually engineer long-term economic growth. This ivory tower appraoch will ultimately fail as China has to continue to mis-allocate resources on a greater-and-greater scale to keep the economy going. True free market capitalism would have already created small problems that cause rational actors in an economy to reallocate resources to better investment and saving initiatives.

The resources WILL be reallocated but instead on doing it on a continuous basis on a small scale over longer periods of time, it will happen on a larger scale over a more compressed time frame.

China's credit bubble on borrowed time as inflation bites - Telegraph