You buy 2, sell 1, get one free

I’ll Tell You When Chinese Bubble Is About to Burst: Andy Xie

Another friend recently vacationed in the southern island- resort city of Sanya in Hainan province and felt compelled to visit a development sales office. Everyone she knew had bought there already. It’s either buy or be unsocial.

“You should buy two,” the sharp sales girl suggested. “In three years, the price will have doubled. You could sell one and get one free.”

The evidence in official-corruption cases no longer involves cash stashed in refrigerators or starlet mistresses in Versace clothing. The evidence is now apartments. One mid-level official in Shanghai was caught with 24 of them.

Why would corrupt officials keep apartments rather than cash? Well, according to Wall Street, the yuan is going to appreciate. So holding dollars is out of the question. And why hold Chinese cash when property prices are always going up?

Expectations of a Chinese currency revaluation are, perhaps, the most important force inflating the bubble.

A bubble evolves and bursts in its own time. When it is about to burst, I’ll let you know.

China’s lending boom, illustrated

Loan growth in China in 2009 outpaced that in other EMs, and by year-end Chinese banking assets exceeded those of the other 23 systems covered in this report, combined.

Retail lending plays little role in Chinese banks’ overall loans.

Where is all that loan growth coming from, then? Here’s another enlightening chart — on state ownership of banks. Again, China is near the top.

The reach of China’s Local Government Funding Vehicles may go well beyond the five big state-owned banks.

Oh dear.

We live in interesting times.