Let me make a broader point: we’ve now seen three island nations around Europe become huge international banking hubs relative to their GDPs, then get into crisis because their domestic economies don’t have the resources to bail out those metastasized banking systems if something goes wrong. This strongly suggests, to me at least, that we have a fundamental problem with the whole architecture (to use the preferred fancy word) of international finance...
All of which raises the question, is the era of free capital movement just a bubble, fated to end one of these years, maybe soon?
Hm. Well, the world's second largest economy maintains very tight controls over capital flows. The third largest economy is actively engaged in managing its currency. The sixth-largest economy has used capital controls to limit appreciation of its currency. Many of the world's other large economies are part of a monetary union actively experimenting with a handful of financial-repression mechanisms. The International Monetary Fund has taken the official position that the use of capital controls may be warranted as a financial stability tool. And so on. I would say that the era of free capital mobility is definitely on life-support

9---Home prices rise nationwide, global times

Average month-on-month new home prices across the nation's 70 major cities skyrocketed in February, official data released Monday showed, intensifying pressure on China's newly elected government to rein in the property sector.

Of the 70 large- and medium-sized cities surveyed by the National Bureau of Statistics, 66 saw an increase in new home prices in February over the previous month, with Guangzhou registering the sharpest growth rate of 3.1 percent, the bureau said Monday. In January, month-on-month prices jumped in 53 cities.

February's surge in new home prices is even starker based on year-on-year figures, with 62 cities reporting a price jump compared to the same month last year. Guangzhou prices surged the most among 70 cities, advancing 8.1 percent from a year earlier. Beijing prices placed second by climbing 5.9 percent.

February's data marked the second consecutive month of year-on-year increases, according to Reuters' calculations based on official figures, and the seventh consecutive month of price hikes in month-on-month terms.

Sharp growth momentum in February surpassed what had been seen in 2009, when the property market was at its most heated, signaling panic among homebuyers in big cities, Zhang Dawei, research director at the Beijing office of Centaline China Real Estate, said in a research note e-mailed to the Global Times on Monday

10---Trouble in China, Daily Reckoning

Chinese Credit Growth at Extreme Levels


Chinese Credit Growth at Extreme Levels
Source: Forbes.com
The painful process of rebalancing wasn't much fun for China's leaders. They didn't really have the stomach for it, not in a change-of-leadership year. They did attempt to rein in lending, and cracked down on the traditional banking sector. But they stood by while the unregulated shadow banking system provided finance to local governments for another round of property and infrastructure spending. According to a recent Forbes article...

'Credit Suisse estimates that the so-called shadow banking system now totals Rmb22.8 trillion or 44% of GDP, making it the second largest asset class in China!'
If you look back at the chart above, you can see that total credit outstanding was at an all-time of high of over 190% of nominal GDP by the end of 2012. Following a 50% month-on-month rise in credit growth in January, the ratio will soon approach 200%.
What does such a high ratio really mean? Well, if credit growth grows faster than GDP, the ratio increases, and it's usually a sign that the growth in credit is unproductive. That is, projects undertaken with the proceeds of credit don't generate much in the way of economic growth. Hence the ratio of credit (debt) outstanding increases relative to the size of the economy.
A recent article in the Wall Street Journal elaborated on this, citing studies from the Bank for International Settlements and the IMF. Referring to the sharp growth in private debt levels, it said:

'On the most important measures of this rate, China is now in the flashing-red zone. The first measure comes from the Bank of International Settlements, which found that if private debt as a share of GDP accelerates to a level 6% higher than its trend over the previous decade, the acceleration is an early warning of serious financial distress. In China, private debt as a share of GDP is now 12% above its previous trend, and above the peak levels seen before credit crises hit Japan in 1989, Korea in 1997, the U.S. in 2007 and Spain in 2008.
'The second measure comes from the International Monetary Fund, which found that if private credit grows faster than the economy for three to five years, the increasing ratio of private credit to GDP usually signals financial distress. In China, private credit has been growing much faster than the economy since 2008, and the ratio of private credit to GDP has risen by 50 percentage points to 180%, an increase similar to what the U.S. and Japan witnessed before their most recent financial woes.'
The ratio is probably closer to 200% now. As we wrote to subscribers of Sound Money. Sound Investments this week,

'Total Chinese credit grew by US$400 billion in January alone. That's 4.8% of the size of its economy...in one month. Annualised, it represents credit growth equivalent to nearly 60% of GDP. If you can show me any economy in the world that has had such massive credit growth relative to the size of its economy and escaped without a crisis, let me know.

'It's only one month, I know. But it's the crescendo of a credit-driven policy to support economic growth at all costs. And it's bound to end badly.'
Correction: it WILL end badly.
That doesn't mean a China bust is imminent. But based on historical precedents, it does tell you that trouble lies ahead.
It should also make it clear that China's economy hasn't avoided a hard landing. It has increased the probability of one by doubling up on its credit induced growth path.