China Obsessed With Wealth Effect

We discussed the increasing role of the “wealth effect” in U.S. monetary policy and a key driver of aggregate demand in out last post,  The Gold-Bond Correlation And Other Macro Observations.

Nothing compared to China, however.

Why are investments so important to China?

The way investments drive growth for the most part this through housing prices. So for the average middle-class or upper-class person in China the focus is all on how much will property prices increase this year. They are not thinking about questions like: How can I get my salary to go up? Or how can my children get a better education so they can get a better job? They are not thinking about these fundamental economic things. They are thinking about things like: “Oh my god, I bought this villa in Langfang. The price is up 40%. Should I sell now? Or will it go up another 60%?” That’s what the government is thinking about, too, because that’s the way to drive growth and the way they get people excited and to get them to buy into the idea of the great Chinese miracle. – Anne Stevenson-Yang, J Capital, on Zero Hedge, August 28, 2017

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