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China’s Middle Class Skyrockets, but the Bubble May Burst

Credit Suisse claims that China’s middle class is now the biggest in the world, growing much faster than America’s, but the reason for this situation is less obvious than one would think.

The financial services company stated that 109 million Chinese are worth between $50,000 and $500,000, adding that since 2000, the number of Chinese joining that financial stratum doubled the number of Americans doing the same.

Credit Suisse admits that, in making its claim, it measured wealth rather than income. This means that those who own real estate in China can claim greater wealth, especially because the Chinese real estate market is greatly inflated.

Beijing opened the mortgage-loan market in 2008 to the people, allowing real estate prices to soar. Li Gan, economics professor at Texas A&M University, told Bloomberg Briefs, “Winners from the stock boom have already started taking funds out of the market to buy real estate.”

In the first quarter of 2015, property buyers split between those trading stocks and those who did not, but the second quarter of the year featured stock investors 50 percent more likely than non-traders to buy property, according to qz.com. In July 2013, new home prices in major cities, including Beijing and Shanghai, rose more than 10 percent from 2012.

Credit Suisse warned, “The wealth of the country’s households could well continue to leapfrog the growth rates of developed economies,” but the warning ignores the incipient Chinese economic crisis. China’s rise in private sector credit as a percentage of GDP rose 82 percent from 2008-2014. Comparatively, the United States saw a 32 percent rise in the six years prior to 2009 and the economic meltdown.

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