Easy Credit Dries up In China's Boom Towns

The New York Times is reporting that consumer credit, once powering spending sprees in China's newest and most rapidly developing cities is being replaced by repossessions and the closure of "luxury" foreign brand stores.

The owner of the city’s largest jewelry store was detained by the authorities a week ago after creditors found him secretly packing millions of dollars’ worth of gold and jewels into cases and accused him of preparing to flee the city without settling his debts. A top restaurant closed a day earlier, and its owner left town, as have the founder of the Fortune Garden and many other executives.

The bursting of the real estate bubble in ghost cities like Ordos and Fugu isn't helping, as the expected returns on over-investement aren't coming.  Short sighted economic predictions are largely to blame.

Most analyses of China’s economy look only at the real economic growth rate, around 7.5 percent this year. But for companies’ sales and profits, which determine their ability to repay debts, what really matters is the nominal growth rate, which is real economic growth plus inflation.

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