American policymakers have historically displayed a penchant for the neurotic when it comes to analyzing the economies of other countries. Depressed about America’s own prospects, they constantly overestimate the strengths of foreign realms. We have seen this time and time again- with the Soviet Union, Japan, the Asian Tigers, the Eurozone and now, of course, China. The chattering classes have gone into overdrive with the state visit of Chinese president Hu Jintao. They are gleefully portraying his meeting with President Obama as a meeting of equals, and some note that China may soon eclipse the newly humbled American giant.
Well, maybe. But while China certainly has economic strengths, it also has glaring structural weaknesses, as discussed by China watcher and famed investor Jim Chanos. Its well-publicized export sector masks the fact that real estate and construction are the driving forces of China’s economy, accounting for 60% of GDP compared to the 10-15% range in more mature economies. China’s export industries only account for 5%, which puts China at risk of a very painful business downturn should the bubble burst:
Economic stories often overlook the realities faced by ordinary people. What is it like to live in the midst of China’s property boom? The video below shows the dilemma of an aspiring professional couple as they try to secure a foothold in Shanghai’s booming real estate market. They are simultaneously afraid of the cost involved and the risk of being priced out of the market forever if they delay- the eternal “it’s now or never” dilemma.