Harry S. Dent | Monday, November 5, 2012 >>

We’ve warned for more than two years now that the greatest bubble in the world is not in the U.S. or Europe.

It’s in China.

China continues to build housing for no one. It has ghost metropolises like Ordos that are 100% ready to contain one million people right now. Yet it’s totally empty.

China continues to build factories that have way more capacity than they need to satisfy domestic or export demand.

It continues to build roads, railways and bridges to nowhere.

It employs over half of the construction cranes in the entire world and dominates cement production as well.


Why is it doing this?


It’s doing it because those in power in China understand a secret that our research has uniquely revealed. That is, the greatest factor driving growth in emerging countries is NOT demographics or the peak spending of new generations like in the U.S. and developed countries (although that is the second biggest factor).

The greatest factor driving growth there is simply urbanization. Moving people from rural areas to cities where their incomes tend to triple.

China has done this faster than any country in history and it does it by creating massive jobs for these rural migrants.

China’s policy is simply growth for growth’s sake… to create jobs for migrant rural workers by massive government investment in infrastructures. “Build it now and we will worry what to do with such capacity later!” is the prevailing attitude.

It’s About Pride… and Mafia-Like Control

China doesn’t operate under an elected government. Its rule is still suppressive… even brutal at times… just like the Mafia.

And the best way for such a government to stay in power – especially over the second largest economy in the world – is to keep the people happy. You keep people happy by creating massive numbers of jobs and demonstrating high economic growth.

When people are employed and confident in their future, they can afford to be proud.

And pride is part of the Chinese way of life. The Chinese government and citizens strive to show the world how great and important they are… reporting growth numbers of 10% to 12% bring much gratification.

Of course, such numbers are typically overstated. China economy is reporting present growth rates at around 8%, but analysis of basic indicators like electricity use suggest China is growing at 4% to 5% at best.

The thing is, there must be a consequence of overbuilding infrastructures from housing to factories to roads. And there is. Overcapacity! When you have overcapacity, your fixed costs of operation are high, your sales are low in comparison and your profit margins are low or nonexistent.

Any business knows this.

On top of that China still has a large proportion of its key industries operating as state-owned companies. Let’s be honest. We all know how good they are at being accountable for profits and sound business operations.

China is nothing more than a mafia-like, top-down economy where nepotism is the main incentive. Local communist leaders get monopolies, capital and loan backing from the central government. Then they build all types of stuff to create jobs in their region and graft for the political elites and their business cronies.

In China, profits are not the motive. Growth for growth’s sake and political gain is.

And its stock market is the clear proof of this.

The Chinese stock market is what shows that China’s economy is just plain B.S.

China economy has seen the strongest growth of any major country in the world since the 2008 crash… yet its stock market has had the weakest bounce (it peaked way back in February of 2010) and the Shanghai Composite has now fallen back near its lows of early 2009.

Growth without profits is the story of China and that is not sustainable. Nor is it good business or political strategy in the long term.

Economists, in all of their academic delusion, often claim that the new economic model is state-driven capitalism. But anyone who has studied history knows that governments rarely make good choices in picking business strategies or technologies. They are only good, at best, at allocating capital and resources to key shared infrastructures and things like national defense that must be centralized to work.

We think China economy is heading for a hard landing ahead. China will prove this new state-driven capitalistic model to be dead wrong and down-right dangerous!


P.S. On Wednesday and Thursday, Rodney and I will host our Demographic School in Tampa, FL. This is where we give attendees the tools they need to put our research into practice in their businesses and investment strategies. Rodney will be reporting to you from the conference both days. We will also be making the audio recording of this conference available to you next week. Stay tuned.

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Here’s a look at China’s Shanghai Composite Index compared to the S&P 500. In picture form, it’s quite easy to see how the two diverge.

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Harry Dent
Harry S. Dent Jr. studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of his chosen profession that he turned his back on it. Instead, he threw himself into the burgeoning new science of finance where identifying and studying demographic, technological, consumer and many, many other trends empowered him to forecast economic changes. Since then, he’s spoken to executives, financial advisors and investors around the world. He’s appeared on “Good Morning America,” PBS, CNBC and CNN/Fox News. He’s been featured in Barron’s, Investor’s Business Daily, Entrepreneur, Fortune, Success, U.S. News and World Report, Business Week, The Wall Street Journal, American Demographics and Omni. He is a regular guest on Fox Business’s “America’s Nightly Scorecard.” In his latest book, Zero Hour: Turn the Greatest Political and Financial Upheaval in Modern History to Your Advantage, Harry Dent reveals why the greatest social, economic, and political upheaval since the American Revolution is on our doorstep. Discover how its combined effects could cause stocks to crash as much as 80% beginning just weeks from now…crippling your wealth now and for the rest of your life. Harry arms you with the tools you need to financially prepare and survive as the world we know is turned upside down! Today, he uses the research he developed from years of hands-on business experience to offer readers a positive, easy-to-understand view of the economic future by heading up Dent Research, in his flagship newsletter, Boom & Bust.