The blog has come across an interesting example of the impact of China’s credit growth, courtesy of Merryn Somerset Webb in the Financial Times. She highlights a YouTube video (link above) which investigates the new city of Ordos.
The old city has become known as “China’s Texas”, because of the recent wealth generated from the local coal industry. It claims the highest GDP/capita in China after Shanghai. Over the past 5 years, this has led the authorities to build a new city, 30km away, to house 1 million residents. Now the new city is complete, but it is apparently empty.
From the government’s point of view, it’s a success, because it has made a significant contribution to GDP growth. And the housing has all been bought by speculators, who believe (as we used to in the West) that prices always rise over time. For them, as an academic working in China notes during the video, “its not a place to live, but to put your money“.
Webb closes her analysis with the disturbing comment that, according to the US National Bureau of Economic Research, the best indicator of a coming financial crisis is “rapid credit growth“. It certainly adds to the worries about the sustainability of chemical and polymer demand expressed by my fellow-blogger, John Richardson, last week.