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Chinese M2 Rose 15% Between May, 2010 and May 2011.

In Investment Returns, Money Supply on June 15, 2011 by CQCA

Chinese M2 increased from RMB 66.3 trillion in May, 2010 to RMB 76.3 trillion in May, 2011, or 15% annually.

I got back to China four days ago, and from a few observations, I can see that this new money is flowing mostly into housing. I went down to the convenience store yesterday, and the price of a large bottle of water and a cup of yogurt are the same as they were two years ago, when I first came to China. Meaning that the increase in the money supply is not being reflected in basic consumer goods.

Housing prices are another story. A friend of mine told me that when she went to meet the new people that had moved in above her, she found out they had paid double what she had paid two years ago. (And this was on the fifth floor of a building with no elevator.)

Another friend’s house has increased four times over the 2005 purchase price. That is much higher than that the 160% increase in China’s currency over that time. I believe China will most likely experience what the U.S. is going through in that housing prices crash while the price of every day goods continue to rise.

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