Monday, February 23, 2009

The Silence of Breaking China

Quietly, quietly, the word is getting out that China could be the most unexpected busted nation.

On April 21, 2007, China reported that:

"The Red-crowned Crane has won out as the candidate for China's national bird after years of expert analysis and public polls."

The cranes are now silent and motionless. The big, mechanical ones, that is.

Two days ago, Econblog Review referred to this problem in China: Decoupled, or a Potemkin Economy?

The L.A. Times now reports: Beijing's Olympic building boom becomes a bust.

Read, and wonder:

Reporting from Beijing -- "Empty," says Jack Rodman, an expert in distressed real estate, as he points from the window of his 40th-floor office toward a silver-skinned prism rising out of the Beijing skyline.

"Beautiful building, but not a single tenant.

"Completely empty."


So goes the refrain as his finger skips from building to building, each flashier than the next, and few of them more than barely occupied.

Beijing went through a building boom before the 2008 Summer Olympics that filled a staid communist capital with angular architectural feats that grace the covers of glossy design magazines.

Now, six months after the Games ended, the city continues to dazzle by night, with neon and floodlights dancing across the skyline. By day, though, it is obvious that many are "see-through" buildings, to use the term coined during the Texas real estate bust of the 1980s.

By Rodman's calculations, 500 million square feet of commercial real estate has been developed in Beijing since 2006, more than all the office space in Manhattan. And that doesn't include huge projects developed by the government. He says 100 million square feet of office space is vacant -- a 14-year supply if it filled up at the same rate as in the best years, 2004 through '06, when about 7 million square feet a year was leased.

"The scale of development was unprecedented anywhere in the world," said Rodman, a Los Angeles native who lives in Beijing, running a firm called Global Distressed Solutions. "It defied logic. It just doesn't make sense."

Construction cranes jut into the skyline, but increasingly they are fixed in place, awaiting fresh financing before work resumes.

Boarded fences advertise coming attractions -- "an iconic landmark" or "international wonderland" -- that are in varying states of half-completion. A retail strip in one development advertised as "La Vibrant shopping street" is empty.

Just consider: "more than all the office space in Manhattan" . . . "It just doesn't make sense."

This can only be the result of corruption on a grand scale. Centrally-planned economies just don't build unbelievably gigantic amounts of office buildings on spec. But bribed officials will grant building permits ad infinitum.

At least in the U.S. housing bubble, the builders bothered to place people in the homes.

If China suffers the hangover of all capitalist bust hangovers, it may have nothing better to do with its Treasury holdings than to hold on to them.

Another mess. The East may be Red: balance-sheet red.

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