Over the past 18 months, the global fascination with Chinese economic invincibility has steadily waned. And economic sophisticates have reached a consensus: China’s growth rate is slowing. Western demand for exports is falling. And the economy is plagued by overinvestment and excess capacity in housing, steel, and a host of other sectors. Officially, China is growing at a 7.5 percent rate this year. But I guesstimate that China is downshifting. Over the next 10 years, it’s possible that China will grow at an annual rate between 3 and 5 percent.
The financial press is doing a good
job discussing these direct impacts of China’s growth slowdown. But
there are plenty of other indirect, second-order impacts that have been
ignored.
For instance, the impact of the Chinese economic slowdown on art markets, something I’ve wrote about in this space, has been dramatic—with the share price of Sotheby’s falling by almost 50 percent over the past 18 months.
The hidden story embedded in the Chinese economic “slowdown” is that investment-led growth is plunging. And the global implications are many: industrial commodities like coal and iron ore lose their China “bid”; mining companies find themselves expanding capacity in the face of slowing demand; commodity-reliant countries like Brazil find the China growth tailwind is turning into a headwind; currencies like the Australian dollar are exposed as extremely vulnerable; rail and port operators find that the volume of containers they handle is falling.
“Vancouver has been a popular destination for Chinese, driven in large part by its proximity to China and its spectacular feng shui,” notes Jamie MacDougal of Sotheby’s International Realty. The surge of Chinese interest began in earnest following the Tiananmen Square massacre. Vancouver emerged as a safe place to park capital. A long-standing Canadian policy has offered citizenship to foreigners willing to make substantial investments. But MacDougal notes that Chinese offshore buyers arriving in Vancouver spiked to truly unsustainable levels in 2011, during which bidding wars were regular events and property values rose by the week. Check out the chart below.
The hidden story embedded in the Chinese economic “slowdown” is that investment-led growth is plunging. And the global implications are many: industrial commodities like coal and iron ore lose their China “bid”; mining companies find themselves expanding capacity in the face of slowing demand; commodity-reliant countries like Brazil find the China growth tailwind is turning into a headwind; currencies like the Australian dollar are exposed as extremely vulnerable; rail and port operators find that the volume of containers they handle is falling.
“Vancouver has been a popular destination for Chinese, driven in large part by its proximity to China and its spectacular feng shui,” notes Jamie MacDougal of Sotheby’s International Realty. The surge of Chinese interest began in earnest following the Tiananmen Square massacre. Vancouver emerged as a safe place to park capital. A long-standing Canadian policy has offered citizenship to foreigners willing to make substantial investments. But MacDougal notes that Chinese offshore buyers arriving in Vancouver spiked to truly unsustainable levels in 2011, during which bidding wars were regular events and property values rose by the week. Check out the chart below.
Given this dynamic of rapidly rising supply, it would not be surprising to most observers if prices were falling rapidly. This has not been the case. According to Eugen Klein, president of the Real Estate Board of Greater Vancouver, “prices in the region remain relatively stable overall.” Again, the raw numbers seem to validate his view: average home prices in the Vancouver area were down a mere 0.8 percent between September 2011 and September 2012. It sure seems like we are witnessing stable prices in the face of rising supply and falling demand.
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