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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The Economics of Relaxing the One Child Policy

CNN assesses what a relaxation of the one child policy would have on China's economy.  The policy, which sets out how many children a couple can varies depending on the exact circumstances of the parents, but the demographic impact has been dramatic, and for those who break the rules, the fines can be extortionate - a major money spinner for local governments.

China has gotten old before it has become rich, and the aging population means a shrinking workforce, a situation not helped by limiting the growth of the next generation is such an overt way.  Changing the rules now may not give the expected results that mandarins where planning on, however.

Qinwei Wang and Gareth Leather, analysts at Capital Economics, wrote this week that a higher fertility rate "will not provide a solution to the worsening demographic outlook in the coming decade."

For one, even if birth rates were to increase, it would take 15 years -- or more -- for those children to enter the labor force. Wang and Leather also point to evidence that a swelling labor force added less than a percentage point to average economic growth over the past two decades.

Balancing the needs of the aged with the demands of the economy might prove to be a bigger headache than anyone imagined in the People's Republic

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