China Herald: Why China keeps on building -Shaun Rein

Shaun Rein

Shaun Rein takes on China-bull James Chanos in CNBC and explains why China keeps on investing in infrastructure and why he is underestimating the current growth of wages.

A fragment of his arguments:

It is common for families of 3-5 people to live in 350 square foot homes; the average house in America is 2,330 square feet according to the National Association of Home Builders. Many workers live 8 people to a room. Workers are moving to urban areas in search of better pay. This year, for the first time, more than 50 percent of the country lives in urban areas, up from 30 percent just a decade ago. As the country continues to urbanize and incomes rise, people need more comfortable living conditions.

Chanos also makes the mistake of underestimating rising incomes. Per capita GDP more than tripled to $3,400 at the end of 2010 from $949 in 2000. The trend is continuing as foreign direct investment (FDI) is rising 25 percent a year, causing a fight for both white collar talent and manufacturing jobs.

Factory salaries at companies like Toyota [TM 79.54 -0.42 (-0.53%) ], Foxconn are rising 20 percent year on year. The number of US dollar millionaires has risen to nearly 1 million, when just dozens had that wealth two decades ago. In other words, rising incomes and urbanization are creating demand for empty units.