The Chinese Mirage - a Paper About the Current Real Estate and Financial Bubble Driving China's Extraordinary Economic Growth

In the aftermath of the United States mortgage crisis, there looms a potentially more impactful, deadlier property bubble in Asia. It has commonly been assumed that China would lead the global economy out of its rut, and into growth. Indeed, the popular view is that the twenty first century will be China’s, much as the twentieth century was dominated by the United States and the nineteenth century was dominated by Great Britain. This view has developed based mainly on a casual glance at China’s relentless, enormous rate of growth and their massive population. If one digs a bit deeper however, they will find a very troubling reality underneath the Chinese economic miracle. The rapid growth is not built on a solid economic foundation, but rather a real-estate bubble of their own, and construction projects specifically designed to spike GDP numbers with no regard to the value and utility of what is constructed. This is happening at a time when the rest of the world is looking at China as the rising tide to lift all economic ships. The Chinese real-estate and construction bubble has the potential to take global GDP growth from greater than 3% into the negative.

To fully understand the Chinese bubble economy, one must find its origin. It can be traced as far back as Deng Xiaoping’s 1979 “one child policy” designed to control China’s population growth (Wand and Cai). Although originally envisioned as a temporary measure, nearly three and a half decades later Chinese citizens are still limited to just one child per couple in all but the rarest circumstances. Over the years, this has created one of the most lopsided demographic dynamics the world has ever known.

The first aspect of their demographic imbalance is the unprecedented high number of males per females. Because of China’s cultural preference for male children to help the parents work, and an artificial limit of one child per couple, many parents have resorted to aborting daughters, and even going...