By Stephen Leeb, Contributor

China has hit targets in virtually everything central planners have ever outlined. Plenty of naysayers cite China’s purported credit-debt bubble and its supposedly overbuilt infrastructure. Often, critics like “60 Minutes” cite China’s putative ghost cities, fully built urban areas where supposedly few to no residents live. I am not alarmed by China’s so-called ghost cities, much less Chinese overbuilding or vulnerability to a crash. The fact is, China’s urbanization goal requires that it build roughly 100 cities in the next decade, vastly greater than the scant, same five “ghost cities” belittled again and again over the last decade. Of the targets, Ordos has garnered the most publicity, probably due to its size and Mongolian desert location. But two documentary filmmakers, Adam Smith and Song Ting, offer a very different and compelling assessment. Ordos “sprang to life” on the heels of a major coal discovery. That led to massive building. Really, Ordos includes two cities, one already a vibrant metropolis of 2 million residents whose average income matches that in the U.S., the second as yet small, but as the film makers suggest, starting to catch fire. Whatever overbuilding China may have done, it was simply insufficient to create an economic crisis. The IMF authored the most comprehensive report to date on Chinese over investment. China’s debts, unlike those of the U.S. and most other countries, the IMF notes, are owed to China itself. Therefore, the risks of a full-blown Chinese economic crisis remain small. The misallocation of resources does create some economic strain. The IMF calculates that these translate into a subsidy from households to large state-owned enterprises, of roughly 4% of GDP. However, if that figure is accurate, or even somewhat higher, Chinese per capita income has nevertheless grown faster, over a much longer period of time, than in any country since the advent of capitalism. In the last 13 years, by contrast, real U.S. median incomes declined about 10%. Moreover, the IMF and Western analysts in general judge investment returns along a fairly short time horizon. China probably views returns on investment in its infrastructure, especially in energy, as heavily back-loaded. Chinese academic articles predict peak coal sometime in the next decade. Clearly, the world ought to start to prepare now, although gains will not be evident until coal supplies start to lag demand. To me, this provides yet another indication that China sits on firmer ground than many believe, and that fears of a Chinese real estate bubble in particular are way overblown. Here’s a number never cited in the U.S. press, real estate price changes relative to GDP. Broad-based measures of home or property prices in China, show that gains over several years pretty much match GDP growth. During the U.S. housing bubble, by contrast, home prices increased several times faster than annual growth in GDP. Similarly, in Japan, real estate prices during the late 1980s rose many times faster than GDP growth, while P/Es on the Nikkei in the same period often rose to triple-digit …read more

Source: FULL ARTICLE at Forbes Latest