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The shock better comes sooner than later - the longer the current unhealthy development goes on, the bigger the shock will be. And, I'm afraid, the shock is about to come, as it looks like:|
The chinese housing market is currently the biggest bubble in the world. Chinese government (esp. Wen Jiabao) was smart enough to see that and took measures to prvent the bubble from growing even bigger. Now, in a lot of Chinese cities, the real estate prices are collapsing - in Shanghai, for instance, more than 20% per month! That might be a nice thing for those vast amoung of people who are willing to buy houses - but in the short term, it's a big threat to Chinese economy (while in the long term, it will help China to develop healthier). In 2009, 62% of China's GNP was created by building houses - that's nearly two third. Now if prices are droping and at the same time, less credits are available, there are not incentives anymore to go on building.
But what happens with those 60 Percent of China's GDP? Will it collapse?
It would. But the Chinese goverment is not stupid and invests billions in building infrastructure, which helps to reduce the impact. Anyway, billions won't be enough to keep a trillions industry alive... In addition, the local governments are earning much less, as they've made a lot of money with the real estate bubble - and can't go on doing so.
So that's why currently, appreciating the Yuan would be stupid - and dangerous. Not only to China, but to the whole world - including america.
The good thing is: China gradually emerges from a cheap economy to a more sophistivated economy (as the gov calls it: "economic upgrading"). This is painful now for a few years and the GDP growth the government is reporting is just based on inflation. So therefore, Chinese people are currently poorer than like one year ago and there is less investment capital available.
But in like 5 years, when the whole process is finished, everyone in China will be richer - people can afford houses again and the economy concentrates on more sophisticated products. We can just hope that the Shock won't have a too big impact on people's life.
However - the shock today is the growth of tomorrow. And that growth will be the wealth of tomorrow. So the shock today is tomorrow's fortune.