If the history of Asian development is anything to go by, China is about to hit an investment wall and its loans to the property and construction sectors are about to collapse, according to Nomura.
Nomura on China:
Then there is the overcapacity issue. Other Asian economies (Japan, Korea, Singapore, and Thailand) have hit the wall on investment share of GDP at the seven- to eight-year mark. The building out of railway network has reached art form status. Individuals facing negative real deposit rates save via housing, but prices are declining with an uncertain tail risk and negative liquidity conditions.
Home prices may be declining, but inflation is skyrocketing. Societe Generale think the country should anticipate an “inflation break-out,” as monetary policy is now lagging too far behind the current problem.
Even if China does get around to the aggressive rate hikes Societe Generale suggest, Nomura’s Fred Goodwin warns, “monetary policy is a blunt tool, prone to accidents.”
One thing that now seems likely: the massive growth in construction and real estate loans as a per cent of Chinese GDP appears ready to head the opposite way.