Will a Debt Crisis Hit China?

History tends to repeat itself. America saw subprime mortgages given to almost anyone, the development of a housing bubble, its pop, an economic crisis and finally the remains that are still being pieced together.

When the 2008 recession hit, China, like most countries made efforts to continue stimulating its economy. This led to the Chinese housing bubble, with high-end houses and apartments being built and salaries not large enough to support such homes. As China continues to spend, money is coming in the form of loans from state owned banks. These loans are sent to local governments to spend on real estate, power plants, roads and railways in an effort to maintain economic growth. 37% of the debt was spent on infrastructure construction while 25% went to public transportation. Growth has not been seen.

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America vs. China: Converging or Diverging Interests?

With China’s inhabitants representing nearly one-sixth of the world’s population, it’s no wonder their competitive edge has been in their labor workforce. For years American companies have been outsourcing production to countries like China where more affordable manufacturing costs have become profitable investments. Adding to their already competitive advantage, foreign exchange risk has rarely been a deciding factor with China because they have historically pegged the Yuan against the U.S. dollar. The announcement from the People’s Bank of China has now given American companies a reason to rethink about the costs associated with outsourcing to China; but has it given them a reason to take action? There are two lenses one can view this decision through. The optimist would believe the Chinese have loosened their policy to devalue the dollar against the Yuan in favor of both countries’ interests.

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America and China: Converging or Diverging Interests?

With China’s inhabitants representing nearly one-sixth of the world’s population, it’s no wonder their competitive edge has been in their labor workforce. For years American companies have been outsourcing production to countries like China where more affordable manufacturing costs have become profitable investments. Adding to their already competitive advantage, foreign exchange risk has rarely been a deciding factor with China because they have historically pegged the Yuan against the U.S. dollar. The announcement from the People’s Bank of China has now given American companies a reason to rethink about the costs associated with outsourcing to China; but has it given them a reason to take action? There are two lenses one can view this decision through. The optimist would believe the Chinese have loosened their policy to devalue the dollar against the Yuan in favor of both countries’ interests.

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The Chinese Real Estate Bubble: Waiting to Burst?

Luxury cars roll down the streets, million dollar penthouses float above. Women and children walk into high-end stores while men walk along the streets in pressed suits. What may sound like Fifth Avenue in Manhattan is far from it. Instead, Shanghai, is taking the main stage as the Chinese real estate market skyrockets. In Shanghai, China’s most populous city, apartments in the financial district are selling for $45 million dollars a piece. Better yet, three to four of them are selling a month. Some apartments are adorned with Swarovski crystal embedded in the doors, crocodile skin bedposts and Versace chairs resting on the floors. Apartments are selling for $2,300 per square foot, beating out the average Manhattan apartment cost of $1,900 per square foot, a shocking find. Currently, becoming a homeowner has become one of the main proprieties in the lives of the middle class. Chinese economic policies have allowed nine out of ten middle class urban families to purchase a home.

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