In China, Confusion, not Confucius, Reigns

Posted: Jan 10, 2012 12:01 AM

“Be careful what you wish for” is an old Chinese proverb which has never been truer than right now regarding the Chinese housing market.

The Chinese people, according to Western proponents such as Jim Rogers, definitely want what capitalism offers.  

Accordingly,they have one of the great American dreams: calling your home your own.  Whether it was a house or a condo, home ownership so we are told, was the #1 objective for the Chinese. 

So, taking a page from the United States' playbook, the Communist party decided to make dreams into reality. 

The same litany we experienced, from ninja loans to financially engineered products, was implemented in order to show growth at any cost in China.  Unfortunately, more than likely most Chinese did not follow the dictate of Confucius in this; rather they followed the dictate of confusion (Ben Bernanke) who said housing prices never go down. 

Home ownership became a reality in 1998 as the government viewed foreign investment paramount for developing society, and what better way to attract investment than individual home ownership. 

It gave the appearance of a happy and healthy middle class.  Regrettably, neither Rodgers, Bernanke, nor Jintao told the Chinese citizens that housing is not immune from business cycles.  The further prices rise, the greater they fall. 

In addition, irrespective of Communism, Capitalism, Socialism, or Marxism (sometimes not distinguishable), money breeds greed, and greed breeds activities not necessarily beneficial to everyone. 

For example, the overabundance of realtors, developers, and bankers, can ultimately create unemployment, as buyers turn into sellers.  For the past three years, the Chinese stock market has been in a bearish mode, bringing reality to those that were convinced that stock markets only went up.

 It would appear copying the West is not all that advantageous. 

As we begin 2012, Chinese housing losses could turn to fear, to panic, to distrust, and to anger which could eventually lead to civil unrest. 

Will it be like Arab Spring? 

Only time will tell. 

More than likely, Beijing will once again steal from the U.S. playbook and throw cash at the problem, since they have the printing press. 

Just like the U.S., printing money will pacify for a short period of time, but there will ultimately be a dramatic conclusion. 

Can you say Tiananmen Square?