Olympics hangover

The Olympics will end this weekend--a blink of the eye compared to the years China put into mounting this show. This new world powerhouse spent many tens, in fact hundreds, of billions of dollars to ready the country to put their best face forward. They built not only the various high tech, architecturally cutting edge sports venues, but also roads, subways, high speed rail, airport terminals as well as office buildings, hotels and  other commercial real estate ventures. Overall infrastructure spending alone in China has approached more than $150 billion annually in recent years.

China, meanwhile, has been a favored target for opportunistic investors from the U.S. including a large group of institutions and pension funds wanting greater alpha to boost returns. Even as U.S. core funds produced outsized mid-to-high teens performance, pension funds and others began gravitating to Asia looking for more.

Well my guess is they are going to get more than they bargained for as a giant-sized Olympic hangover sets in, compounded by a flagging world economy. Even as real estate returns begin to nosedive here as the consequences set in from the continuing credit crisis, China real estate markets are poised for their own correction. The big Olympics push will be suddenly over and American consumers are pulling back big time in buying all the stuff that Chinese factories have been spewing out and shipping over here.

I always questioned the headlong rush by some investors into China, a hardly transparent or predictable marketplace in the end controlled by a communist dictatorship, which moves millions of people in and out of places on command and stomps out discomfiting dissent. When things go wrong, foreign investors may not find a friendly hand from arbitrary leaders, bureaucracy and institutions. Sure it was alluring--all the potential, the unparalleled urban growth, and emerging industrial juggernaut unbound.  But now underneath the gloss and sheen are basic economic realities--the development growth track accelerated by the Olympics needs to redirect as global demand ebbs temporarily. And some investors may get caught in a dislocating transition.

After the fireworks end, the light shows dim out, and the athletes go home, China may not be such a happy, uplifting place, if it ever were.