It's the biggest and clearest sign yet: China is a giant bubble waiting to burst.
With Europe in the spotlight, few are thinking about China these days. And when China does come up, it is typecast as the wealthy uncle with deep pockets — the one player rich enough to help keep Europe afloat. (We saw that earlier this week, on hopes that China would buy Italian debt.)
China itself, though, is in the grip of a dangerous bubble, complete with "ghost cities," infrastructure overload, Ponzi finance schemes and the potential for trillions in bad bank loans.
China's finances are very opaque — and deliberately hidden from the public. It is hard to see from the outside in. This can make it hard to determine just how far things have gone in the bubble department.
But there are clues, just as there were with Japan's monster bubble in the late 1980s.
If you'll remember: For a window of time, Japan was going to dominate America and take over the world. The Japanese way of doing business was considered superior, unstoppable even, in comparison to the weaker Western way.
At one point — the peak of the frenzy — the ground under Japan's imperial palace in Tokyo was deemed more valuable than all the real estate in California. Anecdotes like that one, amid other tales of mind-blowing excess, marked a multi-decade top.
So what is the comparable China bubble sign?
Take a look at the building below (click to enlarge)...
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What is it?
One could be forgiven for thinking the Palace of Versailles... or British Parliament... or some grand old Austrian estate dating back to the Habsburg Empire.
The source will be revealed in a moment. But first, below see two shots of the building's interior — which is, if anything, more elaborate than the outside...
OK, enough of the suspense.
So what is this place? Some powerful new government ministry? A cultural center? A seven-star hotel to rival the Burj Al Arab in Dubai?
No. It's a Chinese pharmaceutical plant. As in, a factory that makes pills...
The images come from ChinaSmack, a website that translates and reports popular Chinese news and trends. Via Chinese television anchor Li Xiaoming — as translated by ChinaSmack — we get the following:
Initial reaction, Harbin Pharmaceuticals Six is a state-owned enterprise... It is said that state-owned enterprises are the people's enterprises, so the people should know how the enterprises' money is used. This "palace," would the people be delighted to see it?
It does look like a beautiful place to work:
The trouble with this sort of thing is, one rarely gets "a little bit of excess." Wasteful spending tends first to come in trickles, then in floods — especially when funded by gushers of cheap capital.
And with a plain-Jane pharmaceuticals outfit — a pill factory no less — pushing such limits, one can only wonder what the other SOEs have done with their cash.
China's "command and control" approach to keeping up employment and maintaining the boom involved staggering sums of lending from the state-controlled banks.
When determined bureaucrats push loans out the door on a quota — to the tune of trillions no less — the development of "palaces" (or other boondoggles) is not such a stretch.
It would be a stretch, however, to think China can get through its self-created real estate and finance bubbles unscathed.
As with invincible Japan in the 1980s and crack-up Japan post-1990, there is the initial perception and the aftermath. We may shake our heads over many more tales like Harbin's after the smoke clears.