Theoretically forever given it owns its own banks:
The real problem is, it can’t keeping doing it and keep lifting living standards. There are already 50-60m empty apartments, enough to house all future urbanisation:
All of that wasted capital has a cost. It destroys productivity and income growth stalls. We are already there:
So, the real question is, how long can this illusion of growth be maintained before it triggers unrest?
In the case of the Soviet Union the centrally planned capital mis-alloaction occurred in military spending. Eventually that left everything else withering on the vine. One measure we might use to see how far down the same course is China with its empty apartments is levels of debt. We know that SOE debt is huge. But the key measure ahead is probably the households that buy the empty apartments. On that score, the news is good and bad:
Not too high even if household indebtedness has doubled in under four years. However, if we assess it versus household income, a much more useful gauge given income is the issue at hand, the picture is much worse:
That ratio is already roughly the same as US households.
In other words, rather than doing what it was supposed to, rebalancing by shifting income from capital mis-allocating SOEs to households for consumption, Chinese households have been borrowing to mis-allocate their own capital into investment to enjoy boost consumption via wealth effects.
How long can China keep this up? The further in it goes the lower the interest rates needed to sustain it and the higher the capital outflow pressures threatening crisis.
I give it three years tops.