China: A nearly flat tire?

A country’s national anthem is part of its national statement. However, one of the oldest national anthems, which is Spain’s Marcha Real—dated 1761—does not have any lyrics to the music.

America’s “Star Spangled Banner” was written after the author witnessed the bombardment of Fort McHenry by British ships during the War of 1812. “La Marseillaise,” the national anthem of France, was written after the declaration of war by France against Austria in 1792.

The Song of the Germans, the national anthem since 1922, makes clear its theme in the first stanza: “Germany, Germany above all, Above all in the world.” That was removed from the official version in 1991. Also deleted was stanza two: “German women, German loyalty, German wine and German song, Shall inspire us to noble deeds.” Now it reads: “Unity and justice and freedom are the safeguards of fortune.”

On the Credit Suisse “Military Strength Indicator,” Germany ranks behind Thailand. The Thai national anthem lyrics include, “We will sacrifice every drop of our blood for our nation.”

The People’s Republic of China national anthem—“March of the Volunteers”—was composed to remember the Japanese occupation of Manchuria. “Let us build our new Great Wall!” Unfortunately, the Great Wall looked good on paper but was “an imperfect defense.” In 1533, Chinese soldiers on observation towers served as guides for Mongol war parties into Chinese territory.

China’s economic policies also look good on paper.

The global economy is like a shiny new SUV. But the engine of technology, innovation, human capital, resources, and accumulated knowledge needs four tires to move forward. These four tires are the domestic economies of North America, China, Europe/Middle East, and the rest of Asia. The remainder of the world—South America, Russia, South Asia, and Africa—is the spare tire bolted to the back door, which is only good for emergencies.

No matter how bad you think the rest of the world’s domestic economies are, nothing beats China. One observer said: “China has always been a serial bubble inflator courtesy of a closed [capital account] economy and nearly $40 trillion in bank deposits which slosh from one asset class to another, be it the stock market, BitCoin, commodities, farm animals, or housing.”

Unlike the self-correcting markets—stock, housing, etc.—in the West, the Chinese government has
total control. Housing bubble collapse? Beijing will not let that happen. In the US 28 percent of household wealth is in real estate. In China, it is 75 percent. The total value of Chinese homes is over $50 trillion, twice the size of the US market and will beat the total value of all global stocks—$85 trillion—in just a few years.

About 96 percent of China’s urban households own at least one home, greater than the 65 percent US homeownership rate. In March, 288 apartments in a new Shenzhen property development sold out online in less than eight minutes.

“But China is the largest economy on Earth.” Maybe someday. In fact, the US economy in nominal terms is 50 percent larger. What is larger is China’s home vacancy rate—22 percent—while the US figure is 12 percent.

But like the SUV that needs all four tires, so too the global economy depends on China and its housing bubble. Will that bubble continue? Of course. It is no different than the “money-printing” and “Fear-Of-Missing-Out” that keeps inflating the US stock market bubble. The global economy needs that bubble too.

E-mail me at Visit my web site at Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.

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