Seven empty Manhattans


Overcapacity has grown unfathomably large. By some estimates, the amount of unsold residential real estate is the equivalent of seven Manhattan islands — and the latest credit binge means another property bonanza is under way.

Barry Eichengreen, a specialist on the Chinese economy at the University of California, Berkeley, writes that financial authorities face a series of unpalatable options to head off mounting threats to the banking system. The least bad is probably to issue bonds to recapitalize the banks, essentially placing the burden on future taxpayers. There are no assurances this will happen, but if it doesn’t, Mr. Eichengreen says, “the consequences could be dire.”

In 3 recent years China used more cement than the US did in the entire 20th century. Think about that. It uses the cement and the steel to manufacture both empty cities and phony GDP growth. Its debt is 3-4x GDP, and much higher than that compared to real GDP, since as much as half of reported GDP growth comes from these construction activities. Be short industrial commodities and hang on.

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