Of Chinese Inflation and the Country's Housing Bubble

CALGARY • British Columbia newspaper publisher David Black said China’s largest bank has agreed to provide financial backing for his proposed Kitimat-based heavy oil refinery. The refinery would cost $25-billion to build and all its output would be sold to Asian markets, Mr. Black said in a statement Thursday.

Inquiring minds are reading an excellent report China Real Estate Unravels by Patrick Chovanec, a professor at Tsinghua University's School of Economics and Management in Beijing, China. The report confirms many of the things I said would happen in regards to the Chinese real estate bubble and GDP. Here are a few items of note.

Last night's bad PMI number seems to have been the tipping point in a recent build up of bad Chinese data that came in last month. This morning, the Nikkei fell by 7.3%, and markets around Europe are down as well.

Back in September, we explained that when it comes to "boom" in US real estate, there are three key driving forces: i) the Fed's monetization of mortgage backed securities whose impact however is at best to stabilize the demand floor (and judging by the recent collapse in refi activity even that is questionable), ii) an implicit subsidy as banks keep millions of units on their books (to get a sense of how much check out at the chart in "

   The Ministry of Land and Resources and the Ministry of Housing and Urban Rural Development have released a notice prohibiting property developers who have kept land idle for one year...

The view I have been forming of near-term inflationary pressures is that we're seeing two very different dynamics in play, with the dollar prices of things the Chinese can stockpile and import going up and the dollar prices of everything else (like U.S. wages and rents) under significant downward pressure. The last week seemed to bring some reprieve on the first front.

I was reading this report from Zillow on the future of home prices and it got me thinking about some of the macro trends in real estate.  I’ve turned much more constructive on housing in the last year than I had been for the past 5-6 years.