What can Beijing do if it buys into the idea real estate prices are approaching a bubble?
They’ve already begun to take some steps. We’re seeing jawboning—attempts to talk the market down. That’s not having much of an effect according to the latest prices. They’ve also begun to take some steps such as requiring higher down payments for second homes. But the fact is the game has to keep going. They’re on this treadmill to hell because 50% to 60% of GDP is construction. And if they stop construction, you’ll see GDP growth go negative quickly. That’s not going to happen because in China, people are rewarded at almost every level of government for making their economic growth numbers. The easiest way to do this: put up another building. So they’re really hooked on this sort of heroin of real estate development. Tom Friedman has said never short a country with $2 trillion in foreign currency reserves. The last two economies that had similar foreign currency reserves relative to the size of their economies were Japan in 1989 and the U.S. in 1929. I’ll let that be the end of that
