This is a great example of why the government should never manage the economy. The more government manages, the more it will mess things up. Over time this is nearly always true. It is absolutely true in China.
In China, the government has forced real estate development because real estate development drives GDP. An order comes from Beijing to the regional bosses and banks to build and lend, the regional bosses order the city bosses to build, and on down. The building looks great on paper, but there’s no real market underneath the construction. It’s a lie on a massive scale.
China is the ultimate crony capitalist state and it will keep this charade going as long as it can. And China has lots of guns and ways of keeping its people in line. However, the country has a lot of people and even the Communist Party might not be able to lock down all the anger when reality sets in.
As we wrote months ago these angry real estate investors and ex-construction workers may spark serious unrest in the country. Some have even warned of a possible “Cultural Revolution II” if things get too out of hand.
It is worth noting as we watch the unwinding in China that both Andy Stern, the former head of the SEIU and Jeffery Imelt, the current CEO of GE have recently sung the praises of “state capitalism” in China.